India's Private Sector Output Grows at Fastest Pace in Four Months

By Anant Chandak
BENGALURU (Reuters) – India's private sector output grew at the fastest pace in four months, as preliminary readings from a survey showed. This improvement helps the economy end 2024 on a positive note, supported by stronger demand in both services and manufacturing, along with record job growth.

Asia's third-largest economy saw a softer growth of 5.4% last quarter, but easing inflation is anticipated to boost demand among private sector firms, enhancing the outlook for the upcoming year.

On Monday, HSBC's December flash India Composite Purchasing Managers' Index (PMI), compiled by S&P Global, rose to 60.7 this month, matching August's figure, after a drop to 58.6 in November.
The 50-level separates growth from contraction, and the business activity index remained above 60 in all but three months this year, indicating strong private sector expansion, a level not observed since the 2008 global financial crisis.

Ines Lam, an economist at HSBC, noted that "The small rise in the headline manufacturing PMI in December was driven mainly by gains in current production, new orders, and employment." She added that the increase in new domestic orders accelerated, indicating a rise in economic growth momentum.

Demand rose significantly, particularly in the services sector, where the PMI rose to a four-month high of 60.8 from 58.4 in November, while the manufacturing index increased to 57.4, up from 56.5.

Service providers led sales growth, with the new business sub-index reaching its highest level since January. Improved international demand also bolstered sales, with goods experiencing a faster increase than services.

This has positively influenced the business outlook for 2025, with overall optimism rising to its highest level since September last year, prompting companies to hire additional staff at the fastest rate since the survey began in late 2005. Both manufacturing and services sectors hit new peaks in employment generation.

Inflationary pressures eased in December after two months of rising rates. However, firms continued to increase selling prices, albeit at a slower pace than November’s near 12-year high.

These developments provide relief to the newly appointed Reserve Bank of India Governor Sanjay Malhotra, following consumer inflation that came in lower than expected at 5.48% last month. Economists are anticipating a rate cut in February 2025, according to a Reuters poll.