According to a poll, India’s business activity increased at its quickest rate in three months in July, driven by strong demand, particularly in the services sector. Companies also hired at the strongest rate in over 18 years.
The figures showed continuous development in the private sector, which, according to the government’s first budget since the national election, will be given incentives to enhance skills and create jobs.
HSBC’s flash India composite purchasing managers’ index, calculated by S&P Global, rose to 61.4 this month from 60.9 in June, reflecting three years of expansion. The 50-level distinguishes between expansion and contraction.
“The Flash Composite Output Index signalled continued robust growth in India’s private sector,” said Pranjul Bhandari, HSBC’s top India economist.
“The rise in output in July was led by a further increase in business activity in the manufacturing sector, while the pace of expansion in services output also accelerated and remained well above its long-run average.”
Overall growth was led by the dominating services industry, whose PMI increased to a four-month high of 61.1 this month from 60.5 in June. Manufacturing growth was also strong, with the factory PMI rising to 58.5 from 58.3, the highest level since April.
According to the research, favorable market conditions, buoyant client hunger, and improved technology all contributed to an increase in private sector activities. Both new business in the services sector and manufacturing orders were strong.
Job creation increased at the strongest rate since April 2006, boosting overall company optimism at the start of the quarter, which had fallen to a seven-month low in June.
“Companies turned more optimistic in July, following a moderation in business confidence in June,” Bhandari said.
“We note that the rate of input cost inflation continued to trend higher in both sectors, which has driven firms to keep raising sales prices.”
Meanwhile, prices charged climbed at the fastest rate in over 11 years, but strong demand allowed businesses to pass on high input costs from material, transportation, and labor expenses to their customers.
Higher prices may muddle the Reserve Bank of India’s interest rate outlook, which is aimed at returning inflation to its 4% medium-term target. The central bank is now projected to lower its key policy rate next quarter.