India's composite flash Purchasing Managers' Index (PMI) in April reported strong expansion, fueled by a pick-up in manufacturing output and services sector activity, according to data published by HSBC on Wednesday.
The PMI in April posted a healthy 60, higher than the March reading in spite of lingering trade-related risks. A reading of 50 marks the level between expansion and contraction.
The expansion in new export orders was especially robust during the month, probably fueled by a 90-day postponement of US tariffs. Producers experienced a modest pickup in their expansion rate, but growth in new export orders for services was just as vigorous. Composite new export orders overall rose at their quickest pace since the inception of the data series. This was attributed by some respondents to heightened competitiveness due to the weakening of the Indian rupee against the US dollar.
Margins themselves also strengthened during April, cost inflation being similar to that evident in March although prices charged by firms rose a little more rapidly.
As per the HSBC report, "Our growth framework of 100 indicators suggests that the March quarter is healthier than the last two quarters but still far below June 2024."
But there are a number of countervailing forces in India's economy. Rural demand after harvest and loose monetary policy are likely to provide support, but the report cautions that once restocking demand fades, goods exports could be a drag on overall growth.
The report also estimates that the GDP growth of India may directly be affected by a 0.5 percentage point decline by the effects of tariffs in FY26. The indirect effects also may be substantial, led by the deceleration in export volumes across the world, lower foreign direct investment (FDI) inflows, and supply chain disruption through re-routing of exports.
At the monetary policy level, the Reserve Bank of India (RBI) has already embarked on a cycle of rate cuts, cutting the repo rate by 50 basis points. HSBC is predicting a 25 basis point cut in each of the subsequent three quarters, lowering the repo rate to 5.25% by December 2025. Further, the report also expects liquidity conditions to remain soft, supporting the transmission of these rate cuts.
Read also| India-US strategic partnership will be a defining one of 21st century, Says PM Modi
