Indian manufacturing surged to its fastest growth in 16 months in July, fueled by strong demand. However, business confidence dropped to a three-year low due to competitive pressures and inflation worries, according to a survey released on Friday.
The HSBC India Manufacturing Purchasing Managers’ Index, produced by S&P Global, climbed to 59.1 in July from June’s 58.4, slightly below an initial estimate of 59.2. The index remains comfortably above the 50 threshold that separates growth from contraction.
New orders grew at the quickest pace in nearly five years, driven by favorable market conditions and effective marketing strategies, leading to output growth reaching a 15-month high.
International demand continued to support overall sales, although growth in export orders eased from June’s 17-year peak.
Despite this strong performance, manufacturers’ optimism hit its lowest level since July 2022, with rising competition and inflation cited as major concerns.
The disparity between current conditions and future expectations was evident in hiring trends, with employment increasing at the slowest rate since November 2024. A significant 93% of manufacturers reported that their current workforce met production needs.
A recent Reuters poll of economists pointed to growing employment anxieties. Official government data indicated an unemployment rate of 5.6% in June, though some economists have raised questions about the accuracy of this figure.
Inflation pressures intensified in July as input costs rose, with manufacturers facing higher prices for certain raw materials. Companies increased selling prices for the tenth consecutive month, capitalizing on strong demand to offset costs.
The Reserve Bank of India is expected to maintain its key policy rate at 5.50% in its upcoming meeting, but any uptick in inflation could influence future monetary policy.
Adding to the uncertainty, U.S. President Donald Trump plans to impose 25% tariffs on Indian goods starting Friday, a move that could impact the export sector significantly.
