Private sector grows in November despite cost pressures

New Delhi: With the modest uptick in business activity, India’s private sector economy continued its strong growth in November. The HSBC Flash India Composite Output Index rose to 59.5, even as cost pressures have surged to a 16-month high for both services and manufacturing players in the sector. However, the November month marked the sharpest rate of growth in the last three months, driven by new business gains and export sales, a private survey showed on Friday.

As per the survey, the HSBC Flash India Composite Output Index, which combines responses from services firms and goods producers, rose to 59.5 in November, a three-month high, up from a final PMI reading of 59.1 in October. Generally, the PMI readings of more than 50 indicate an expansion in activity. "The uptick in new business bolstered this month’s job creation among surveyed services firms to the highest level recorded since this data became available in December 2005," the survey noted.

Despite the positive indicators in both manufacturing and service sectors, the survey also showed that inflation crimped the upside as manufacturers reported higher prices for a range of raw materials, including aluminium, cotton, leather and rubber, while services firms weighed in on greater food costs, particularly for cooking oils, eggs, meat and vegetables, and higher wage bills.

Driven by services firms, the survey also noted that employment generation increased at the fastest pace since due to a positive indicator of economic health and consumer spending power. "However, rising inflationary pressures cast a shadow on the positive sentiment, with input costs increasing at the fastest pace in 15 months, forcing businesses to pass the burden to clients and resulting in output inflation spiking at the steepest pace since February 2013," it showed.

Commenting on the survey, Pranjul Bhandari, chief India economist at HSBC, said that India’s flash composite PMI moderately expanded from a final reading of 59.1 in October to 59.5 this month. "The services saw a pick-up in growth, while the manufacturing sector managed to outperform expectations despite a marginal slowdown from its October final PMI reading," Mr Bhandari said.

"Strong end-demand and improving business conditions pushed services sector employment to the highest level ever recorded by this indicator since December 2005. Meanwhile, price pressures are rising for raw materials used by manufacturers, as well as food and wage costs in the service sector," he added.

As per the survey, the ongoing improvements in new business intakes continued to exert pressure on the capacity of private sector companies, as signalled by another uptick in backlogs. "The expansion in outstanding business volumes was moderate, but nevertheless the quickest since May. In turn, firms pursued further recruitment drives in November. The rate of job creation accelerated to the steepest since composite data became available in December 2005, driven by rising workforce numbers across the service economy.