India’s manufacturing sector continued to demonstrate robust growth momentum in July 2025, as reflected in the HSBC Flash Manufacturing Purchasing Managers’ Index (PMI), which surged to 59.2—the highest reading recorded in nearly 17-1/2 years. This marked a strong acceleration from the June reading of 58.4 and signalled a significant improvement in factory operating conditions.

The Composite PMI Output Index, which combines both manufacturing and services activity, stood at 60.7 in July, just slightly below June’s 61.0 but still representing the fastest overall expansion in over a year. This surge was driven by higher order inflows, rising exports, increased investments in technology, and ongoing capacity expansion across sectors.

According to Pranjul Bhandari, Chief India Economist at HSBC, “India’s flash composite PMI remained healthy in July at 60.7, with manufacturers leading the way by recording faster expansion in sales, exports, and output than services.”

Strong Domestic and Export Demand Boost Manufacturing

Operating conditions across India’s private sector improved sharply during July. Total sales grew at the fastest pace in a year, with new export orders rising significantly thanks to demand from key markets such as Asia, Europe, and the United States. The manufacturing sector outpaced services in output growth, hitting its strongest pace since April 2024, while the services sector also held up well despite a slight moderation.

The HSBC Flash Manufacturing PMI Output Index rose to 62.5 in July from 62.1 in June, while the Services PMI Business Activity Index eased slightly to 59.8 from 60.4. The headline Composite Output Index remained well above its long-term average of 54.8, indicating continued momentum in India’s overall economic activity.

Inflationary Pressures Begin to Mount

Despite positive growth signals, inflationary pressures intensified as companies across manufacturing and services faced rising costs for inputs including aluminium, cotton, rubber, steel, transportation, and food items such as vegetables, eggs, and meat. Businesses responded by increasing output prices to pass on higher input costs to consumers.

Bhandari noted, “Inflationary pressures continue to heat up with both input costs and output charges rising in July. Business confidence fell to its lowest level since March 2023, while employment growth moderated to its weakest pace in 15 months.”

Employment Growth Moderates

Employment expanded during July, but at the slowest rate in over a year. The manufacturing sector saw modest job creation, but the slowdown was more pronounced in services, where the employment index dropped nearly four points. The moderation in hiring reflects firms’ caution amid rising inflation and competitive pressures.

Meanwhile, outstanding business volumes climbed at their fastest rate in nearly five years, with backlogs building more acutely in services than manufacturing, pointing to emerging capacity constraints amid strong demand.

Inventory Build-Up Reflects Optimism

Manufacturers increased purchasing activity sharply in July, leading to a substantial build-up of input inventories. Improved supplier delivery times also contributed to better inventory management. However, stocks of finished goods declined, suggesting companies relied on existing inventories to fulfill growing orders.

In summary, India’s July PMI data signals a resilient and expanding economy, supported by both domestic and international demand. Yet, the moderation in business confidence and employment growth highlights risks from inflation and rising competition that firms will need to navigate carefully in the coming months.

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