Private sector production is experiencing the strongest growth in almost 14 years

The Indian private sector has recorded the third-largest recovery since July 2010, according to a private study.

In May, the headline HSBC Flash India Composite Output Index – a seasonally adjusted index measuring the change in the combined output of India’s manufacturing and services sectors – rose from a final reading of 61.5 in April to 61.7, marking the third highest expansion rate in nearly 14 years.

While the manufacturing industry continued to lead growth in both sales and production, it was the service economy that was responsible for the latest acceleration in overall economic expansion, the release said.

Other positive developments highlighted by the May survey included record growth in aggregate exports, the sharpest private sector job growth since September 2006, and notable improvements in business confidence.

On the pricing front, the faster rise in production costs has pushed up the prices of Indian goods and services.

Explaining the recent growth, survey participants cited advertising effectiveness, productivity gains, a large influx of new work and the strength of demand. Services companies saw a surge in economic activity, the largest in four months, and factory output grew at its slowest pace since February.

The latest data showed further signs of growth in new export orders in both the manufacturing and services sectors. At the composite level, international sales grew at the fastest pace since the series’ inception in September 2014.

Meanwhile, the total number of new orders increased significantly and the pace of expansion was the same as in April and therefore one of the fastest since mid-2010.

Continued strong growth in new orders has contributed to job creation across the private sector. Employment has been growing on a monthly basis for the past two years, and in May the pace of growth was the fastest since September 2006. Another factor supporting employment growth was the intensification of pressure on productivity. Total business volumes in the manufacturing and services sectors increased at the highest rate in 21 months. In addition to taking on additional staff as a result of the growing backlog, Indian manufacturers have also purchased additional materials to use in production processes. Purchase levels rose sharply in May and at an above-trend rate.

Amid reports of higher labor and material costs, private sector input prices rose at their fastest pace in nine months. It was mentioned that the prices of chemicals, food, plastics, electronic components and electrical goods had increased. Total sales prices also increased more in May. The inflation rate was lower than production costs, although above the long-term average. A faster increase in fees was recorded in the processing industry, contrasting with the trend observed in input prices.

Finally, overall positive sentiment has reached its highest level in over 11 years.