India's Business Activity Hits 13-Month High in May

Prime Highlights:

Composite PMI increased to 61.2 in May—the highest level since April 2024.

Private sector employment grew at the quickest pace in nearly two decades.

Key Facts:

Services PMI jumped to 61.2—the highest in 14 months.

Manufacturing PMI remained unchanged at 58.3, reflecting consistent growth.

Key Background:

India’s economy continues to be strong post-pandemic, and May PMI numbers recorded the fastest expansion in the private sector in over a year. The dramatic acceleration was headed by the services industry, which also posted sharp expansion in business activity, supported by domestic as well as overseas demand. New orders of business picked up, including export orders, which were at a 12-month high.

The manufacturing industry contributed too by achieving a good growth rate. Although its PMI was unchanged at 58.3, it shows maintained optimism as well as consistent growth in output. Companies in both the industries quoted higher confidence in near-term demand as a reason to increase hiring of labor. More importantly, recruiting accelerated at its best rate since December 2005—providing a sign of greater confidence in the economy.

But rising inflation is now quickly becoming an issue. Input costs hit a five-month high in May, with producers passing the burden to consumers via higher prices of sale. That was very noticeable in manufacturing. Despite that, overall confidence continues to stand, with expectations of strong growth being translated into the second half.

Reserve Bank of India is likely to extend its accommodative policy with the analysts even forecasting a rate cut in June. The economy is likely to rise at 6.2% in 2025, a fraction lower than earlier estimates, and show sustained momentum despite cross-tailwinds. The evenly balanced drivers of demand and labor gains for India put it in a place to be able to deliver long-term stable growth.