The Indian economy made a robust start to the new year, with private sector business activity expanding at the fastest pace in four months in January driven by strong demand.

The HSBC flash India Composite Purchasing Managers’ Index (PMI), compiled by S&P Global, climbed to a high of 61 in January from 58.5 in December, marking its highest level since September. This places the index well above the 50-point threshold that differentiates expansion from contraction.

“Service providers noted a stronger increase in activity than manufacturers, but growth accelerated in both cases,” HSBC said in the survey, released on Wednesday.

This flash result positions India as one of the fastest-growing major economies.

The Reserve Bank of India (RBI) in December revised its growth forecast for the Indian economy to 7% for the current fiscal year, an increase from the earlier projection of 6.5%. This revision was based on higher-than-anticipated growth in the first two quarters.

“The economy grew at a faster pace in January, led by stronger manufacturing output, as well as more robust business services activity,” said Pranjul Bhandari, chief India Economist at HSBC. “New orders rose at a faster pace than a month ago, and within that, international orders were stronger than before. Input prices rose quickly, but output prices were raised to a smaller extent.”

Meanwhile, HSBC Flash India Manufacturing PMI stood at 56.9 in January, up from 54.9 in December.

Activity in the services industry also accelerated at a sharper rate, with the HSBC Flash India Services PMI Business Activity Index rising to 61.2 during January from 59 in December.

Survey participants attributed this growth to favourable economic conditions, strong demand, and continuous improvements in new business inflows. “Indeed, aggregate sales increased at a sharp pace in January, and one that was the fastest in six months. Both manufacturing firms and their services counterparts recorded quicker rates of expansion in new orders,” the survey said.

The latest flash PMI numbers, based on a survey of 400 manufacturers and 400 service providers, follow data showing a robust 7.6% growth in the Indian economy in the second quarter. This growth was supported by increased government spending and strong performance in manufacturing, mining, and construction.

The rise in the HSBC flash India Composite PMI also comes amid high inflation, a moderation in exports, and a fall in core sector growth.

Retail inflation rose to 5.69% in December, up from 5.55% the previous month, the steepest monthly rise since August 2023.

Interestingly, in the first nine months of the current fiscal year, December 2023 saw the highest monthly retail inflation, after July and August, with July recording a 15-month high of 7.4% due to a sharp rise in prices of vegetables and other food items such as pulses, spices and cereals.

Despite exceeding the RBI’s target of 4%, this inflation rate remained within the central bank’s tolerance range of 2-6% for the fourth consecutive month.

Meanwhile, India’s merchandise trade deficit fell to $19.8 billion in December from $20.58 million in November, as the month saw a surge in shipments of electronic goods, drugs & pharmaceuticals and iron-ore exports. Merchandise exports amounted to $38.45 billion in December, with imports at $58.25 billion.

The survey also noted an increase in cost pressures, though selling prices were adjusted marginally. Businesses responded by hiring more workers, as operating capacities faced pressure and business confidence improved.
Source: Livemint

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