India Business Activity Grew Faster In June, Job Creation At 18-Year High, PMI Shows

Business activity in India expanded at a faster clip this month from May thanks to gains in manufacturing and services, according to a business survey that also showed the pace of job creation was at its strongest in over 18 years.

Robust gains in both sectors at the end of the first fiscal quarter meant a strong start to India’s economy this financial year after it expanded by 8.2% last year – the fastest expansion among major countries – partly led by buoyant manufacturing.

HSBC’s flash India Composite Purchasing Managers’ Index , compiled by S&P Global, rose to 60.9 in June from last month’s final reading of 60.5.

That marked nearly three years above the 50-level separating growth from contraction on a monthly basis.

“The composite flash PMI ticked up in June, supported by rises in both the manufacturing and service sectors, with the former recording a faster pace of growth,” noted Maitreyi Das, global economist at HSBC.

The manufacturing index showed bigger gains to 58.5 from 57.5 in May while the dominant services industry’s reading rose slightly to 60.4 this month from 60.2, adding to the continued expansion in India even as the global economy slows.

That was backed by a strong expansion in both manufacturing output and orders as well as business gains among services firms.

New export orders expanded for a 22nd consecutive month in June and remained robust, though the pace eased slightly after record growth last month.

Robust demand prompted companies to hire more people, with overall employment generation rising at the fastest pace since April 2006. Job creation among manufacturers was higher than in the services sector.

Boosting jobs will remain the biggest challenge for the Narendra Modi government which got elected for a rare third term earlier this month, a Reuters poll showed.

Meanwhile, price increases at firms have eased since May, boding well for the outlook on retail inflation. Rises in services input costs eased to a four-month low, while the pace of increases in prices charged to clients was 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.

“Optimism about future output weakened in June, but remained above the historical average.”

Even though business optimism weakened to a three-month low, the outlook for the coming year remained positive as companies expect output gains based on proposals in the pipeline, efficiency gains and forecasts for favourable exchange rates.