India business activity fastest in two decades, price rises sharp

India private sector activity expanded at the fastest pace on record in August, fuelled by a robust surge in demand led by the dominant services sector, which allowed firms to hike prices at the fastest clip in over 12 years, a survey showed on Thursday.

The latest results stand in contrast to expectations for a slowdown in economic growth in Asia’s third-largest economy to average 6.4% this fiscal year after an unexpectedly strong 7.4% expansion during the first three months of 2025.

HSBC’s flash India Composite Purchasing Managers’ Index (PMI), compiled by S&P Global, rose to 65.2 in August from 61.1, confounding expectations in a Reuters poll for a decline to 60.5.

It was the highest reading since the survey began in December 2005 and remained above the 50-mark that separates growth from contraction for the 49th month.

Record expansion was underpinned by the sharpest uptick in total new orders - a key gauge of demand - in nearly 18 years.

The services sector led growth, with its activity index soaring to a survey high of 65.6. The manufacturing sector also showed significant strength - its preliminary PMI rose to 59.8, its highest reading since January 2008.

While that boosted job creation, the survey also showed companies passing on increases in input costs to customers. The output price index increased to an over 12-year high of 55.8 from 53.5 in July.

That also contradicts the recent trend of easing inflation in official data, which dropped to an eight-year low of 1.55% last month.

The Reserve Bank of India, which targets inflation in a 2-6% range, started cutting interest rates early this year to stimulate the economy and paused at the latest meeting but is expected to cut again next quarter.

Firms remained optimistic, with sentiment for the year ahead strengthening to its highest since March.

India’s private sector activity expanded at the fastest pace on record in August, powered by a historic surge in demand led by the dominant services sector, which allowed firms to hike prices at the fastest clip in over 12 years, a survey showed on Thursday.

The explosive growth paints the picture of a booming economy and the accompanying surge in price pressures is likely to compel the Reserve Bank of India (RBI) to keep its policy restrictive for longer.

HSBC’s flash India Composite Purchasing Managers’ Index (PMI), compiled by S&P Global, rocketed to 65.2 in August from 61.1 last month and far outpacing a Reuters poll median forecast of 60.5. This reading marked the highest level since the survey began in December 2005 and remained above the 50-mark that separates growth from contraction for the 49th fmonth.

Record expansion was underpinned by the sharpest uptick in total new orders - a key gauge of demand - in nearly 18 years.

International demand was particularly robust, with new export business growing at the fastest pace since composite data collection started in 2014.

The services sector spearheaded this growth with its activity index soaring to a survey high of 65.6. The manufacturing sector also showed remarkable strength - its preliminary PMI rose to 59.8, its highest reading since January 2008.

While this frenetic activity spurred the quickest rise in job creation since June, it also bestowed significant pricing power upon businesses.

Meanwhile Prime Minister Narendra Modi has proposed India’s biggest tax reform in eight years to lower consumption levies on everyday goods and small cars from October, in a move seen as boosting his his image amid trade tension with Washington.

The structure of the Goods and Services Tax (GST) is complex, with states and the federal government sharing the revenue collected. India adopted the GST in 2017, sweeping in more than a dozen domestic state taxes in a bid to unify the economy on the principle of “one nation, one tax, one market”. It was hailed as the biggest tax reform since independence from Britain in 1947.

The new system had four tax slabs, of 5%, 12%, 18% and 28%, with scores of goods in each category. An additional levy was imposed above the tax of 28% on some items, such as cigarettes, luxury cars and high-end motorcycles.

But it was criticised for being too complex.

Pre-packaged salted popcorn is taxed at 12%, but caramel one at 18%, India said last year, triggering a dispute in which one online user questioned how a “salt caramel” variant would be taxed. Similarly, plain Indian flatbreads attract a 5% tax, but the flaky, multi-layered variety faces a levy of 18%.

The government plans to abolish the 28% slab that applied to products such as cars, air-conditioners and refrigerators. About 99% of products now taxed at 12%, such as butter, fruit juices, and dry fruit, would also shift into the 5% bracket. Reuters has reported small cars will be taxed at 18% down from 28% earlier.

India collected $224 billion last year from the levies. IDFC First Bank says the new reform will hit government collections by $20 billion.

Reuters