Business activity in India surges to 8-month high in March: S&P Global

Business activity in India concluded the fiscal year on a positive note, with the fastest growth rate in eight months recorded in March, as per the latest business survey. The spurt in economic activity was driven by strong manufacturing output and a spurt in new orders.

HSBC's fash India Composite Purchasing Managers' Index (PMI), compiled by S&P Global, climbed to 61.3 this month compared to February's final reading of 60.6. This extended the streak of expanding activity to 32 months, with the 50-mark distinguishing between growth and contraction on a monthly basis. It's a seasonally adjusted index that measures the month-on-month change in the combined output of India's manufacturing and service sectors.

Pranjul Bhandari, HSBC's chief India economist says, "Led by the strongest manufacturing output in nearly three-and-a-half years, the composite output index rose quickly. New orders rose at a faster pace than in the previous month, and within that both domestic and export orders showed improved vigour. Input prices grew at a faster pace in March, and all the increase was not passed on to output prices, leading to some softening in composite margins."

The report states that service providers mentioned observing a significant rise in business activity, which was broadly similar to February. Meanwhile, manufacturers reported experiencing the most robust increase in production since October 2020.

The growth was primarily led by the manufacturing sector, which has been a key driver of the economy in recent quarters. The index tracking factory activity surged to 59.2, its highest since February 2008, compared to 56.9 in the previous month. Demand for factory goods in the third-largest economy in Asia remained robust, with new orders experiencing the fastest expansion in over three years.

Service sector activity remained strong as well, albeit slightly easing to 60.3 in March from 60.6 in February. Overall exports saw their fastest growth in seven months.

The report notes that new business intakes at the composite level rose for the thirty-second straight month in March. The pace of growth was substantial and stronger than that recorded in February. As was the case for output, goods producers led the upturn in sales with the fastest expansion in nearly three-and-a-half years.

Despite these positive indicators, there was a notable increase in overall price pressures. Input costs at services firms rose at the fastest pace in seven months, while prices charged saw the sharpest increase since July 2017. Although manufacturers' prices rose at a slower rate in March compared to the previous year, input costs increased faster than in February, indicating potential stickiness in overall inflation. Manufacturers and service providers both experienced the highest rates of increase in five and seven months, respectively.

Services companies indicated a quicker rise in output prices compared to goods producers, following the trend of input costs. While the manufacturing industry's price inflation dropped to its lowest point in 13 months, it surged to an 80-month high in the service sector.