India’s economy has delivered a powerful signal of strength with the latest Purchasing Managers’ Index (PMI) data showing that business activity expanded at its fastest pace in at least two decades. The surge was driven primarily by a record increase in new orders, a key gauge of demand, highlighting the resilience of India’s private sector at a time when global economies are grappling with sluggish growth.

Record surge in demand

The PMI survey revealed that total new orders rose at the sharpest pace in nearly 18 years, underlining the confidence of consumers and businesses alike. This upswing has been supported by robust domestic demand, increased investment activity, and greater market optimism in both the manufacturing and services sectors.

India’s PMI numbers have consistently outperformed those of other major economies in recent months, but the latest figures mark a historic milestone, placing the country firmly in the spotlight as the world’s fastest-growing major economy.

Price pressures remain strong

While the expansion in activity is a clear positive for India’s growth story, the PMI data also points to sharp increases in both input and output prices. Businesses reported higher costs for raw materials, energy, transportation, and wages, which were partly passed on to consumers. This indicates that inflationary pressures remain elevated, posing a challenge for policymakers.

Economists note that while demand-driven growth is encouraging, persistent price rises could affect consumption if they continue unchecked. This puts the Reserve Bank of India (RBI) in a delicate position, as it balances the need to support growth with keeping inflation within its target band.

Sectoral performance

Both manufacturing and services contributed significantly to the record expansion. The services sector, which includes IT, finance, hospitality, and transport, showed particularly strong performance, driven by higher customer spending and new business inflows. On the other hand, the manufacturing sector benefitted from improved domestic orders and steady export demand.

The survey highlighted strong employment growth, as businesses increased hiring to cope with rising workloads. This trend, if sustained, could help absorb India’s large labor force and boost household incomes.

Implications for India’s economy

The PMI numbers come at a crucial time when India is aiming to cement its position as a global growth engine. Policymakers will take heart from the fact that demand is resilient and broad-based, even as global uncertainties persist. However, inflation remains the key risk that could cloud the outlook.

The record business activity also points to greater confidence among investors, with foreign investors expected to view India as an attractive market for expansion. The government’s emphasis on infrastructure development, digital transformation, and reforms has further contributed to building a favorable business environment.

Looking ahead

If the current momentum continues, India could achieve higher-than-expected GDP growth in FY2026, strengthening its ambition to become a $5 trillion economy in the coming years. Economists suggest that the sustainability of this growth will depend on how effectively the government and RBI manage inflationary pressures while supporting investment and consumption.

In conclusion, India’s PMI data for August 2025 sends a strong message: the country’s business activity is at its fastest pace in 20 years, fueled by record demand. Yet, the simultaneous rise in prices serves as a reminder that high growth comes with challenges, making balanced policy decisions critical for sustaining this momentum.

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