India business activity grew faster in June, job creation at 18-year high, PMI shows

India's business activity surged in June, bolstered by significant gains in both the manufacturing and services sectors. HSBC's flash India Composite Purchasing Managers’ Index (PMI), compiled by S&P Global, climbed to 60.9 from May’s final reading of 60.5. This marks nearly three years of the index staying above the 50-level, which separates growth from contraction on a monthly basis.

"June's composite flash PMI increased, supported by rises in both the manufacturing and service sectors, with the former recording a faster pace of growth," stated Maitreyi Das, global economist at HSBC.

Manufacturing and Services Sectors Drive Growth

The manufacturing index saw a notable increase, rising to 58.5 in June from 57.5 in May. The services sector also posted a slight gain, with the index moving up to 60.4 from 60.2. This robust performance at the end of the first fiscal quarter sets a strong tone for India's economy in the current financial year, following an impressive 8.2% expansion last year, which was the fastest among major economies, largely driven by a buoyant manufacturing sector.

Export Orders and Employment Surge

New export orders expanded for the 22nd consecutive month, albeit at a slightly slower pace than the record growth witnessed in May. Robust demand conditions prompted companies to increase hiring, with overall employment generation rising at the fastest rate since April 2006. Notably, job creation in the manufacturing sector outpaced that in the services sector.

Boosting employment remains a critical challenge for the Narendra Modi government, which secured a rare third term in office earlier this month. A Reuters poll highlighted this as one of the top priorities for the administration.

Inflation and Price Trends

Price increases at firms have eased since May, which bodes well for the outlook on retail inflation. The rise in services input costs fell to a four-month low, while the rate of increase in prices charged to clients remained broadly unchanged. "Input cost inflation eased slightly in June but remained elevated, with panellists citing increases in labour and material costs. The output price index suggests manufacturing firms were able to pass on higher costs to customers," added Ms. Das.

Future Outlook

Despite a slight weakening in business optimism to a three-month low, the overall outlook for the coming year remains positive. Companies expect output gains based on planned proposals, efficiency improvements, and forecasts for favourable exchange rates. "Optimism about future output weakened in June, but remained above the historical average," noted Das.

This strong performance at the beginning of the financial year indicates resilience in India’s economic activities, even as the global economy faces challenges. The continued expansion in manufacturing and services sectors, coupled with robust export orders and significant job creation, underscores the positive trajectory of India's economy.