Robust expansion in India's business activity this May: Here's why
India's business activity saw a significant surge in May, primarily driven by the services industry, as per a recent survey. The HSBC's flash India Composite Purchasing Managers's Index (PMI), compiled by S&P Global, registered a slight increase to 61.7 this month, from April's final reading of 61.5. This marks the 34th consecutive month of the index being above the 50-level, indicating continuous growth.
Acceleration in services sector fuels business activity in May
Pranjul Bhandari, Chief India Economist at HSBC, noted that, "The composite PMI ticked up further in May, recording the third strongest reading in close to 14 years, supported by a sharp acceleration in the service sector." The flash services PMI index climbed to a four-month high of 61.4 this May from 60.8 in April. However, the preliminary manufacturing PMI depicted strong growth but was slightly weaker compared to last month, dipping to 58.4 from 58.8.
Business confidence in India boosted by record-high exports
The survey revealed that overall exports expanded at their fastest rate since the series began in September 2014, marking the second time this year that export growth has set a new record. This surge in exports has bolstered business confidence for the coming year, especially within the services sector, where it was reported to be the strongest since May 2013. Manufacturers also displayed their highest level of optimism in over nine years.
Private sector job creation reaches 15-year high
The positive sentiment was further reinforced by an improvement in job creation across the private sector, to its highest level since September 2006. Bhandari noted that, "services jobs were added at the fastest pace in 21 months." This increase in employment comes as good news for PM Narendra Modi and his BJP during ongoing national elections, as unemployment has been identified as a major challenge for the new government.
Potential impact of rising input prices on retail inflation
However, input costs at a composite level rose at a nine-month high and firms raised selling prices faster in May than in April. Bhandari added that, "Higher input costs in both sectors led to further margin squeezes, particularly for service providers." These high costs could potentially slow down retail inflation's downward trajectory, and put pressure on the Reserve Bank of India to maintain elevated interest rates at its June meeting before considering cuts next quarter.
