India Flash PMI Holds at 60.7 as Manufacturing Hits Peak

India's private sector enjoyed another strong month of expansion in July, with the flash PMI (Purchasing Managers' Index) registering 60.7, closely matching June's 61.0. This is the equivalent of more than four consecutive years of expansion and highlights the ongoing resilience of India's economy in the face of inflationary pressures and delays in hiring.

The manufacturing sector was the star performer, as activity shot up to a 17-year high of 59.2 as factories responded to new demand from both domestic and international markets. Services PMI eased slightly to 59.8 from 60.4 in June, but firmly remained in the growth zone due to support from both, consistent consumer orders and export orders.

Companies reported strong inflows of new work thanks, in particular, to demand from Asia, Europe and the U.S. Nevertheless, firms reported rising input costs, largely driven by aluminum, cotton, food products and costs associated with transportation. Firms reported largely passing these costs on to clients, via an increase in output charges, thus maintaining inflation risk.

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Business confidence weakened from previous months, with confidence levels dropping to the lowest level since March 2023. Business operators expressed concerns over the global economy, competitive pricing compared to other firms, as well as uncertainty around policy changes. Job creation slowed as employment growth fell to its lowest level since May 2022, suggesting a widening divergence between firms output and jobs in India's private sector.

While the flash PMI data points to strong underlying demand, especially in manufacturing, the dual challenge of inflation and cautious hiring could test the sustainability of this momentum in the coming months.