India's private sector remained in expansion territory in July 2025, with the HSBC Flash India Composite PMI Output Index registering 54.3, down from 57.1 in June, according to flash data released on Friday, 24 July. A reading above 50 signals growth in business activity, and India has now held above that threshold for an extended stretch, even as the pace of expansion moderated this month.

The pullback was driven largely by a cooling in the services sector, where business activity eased to 53.1 from 57.4 in June — a notable deceleration. Manufacturing, however, moved in the opposite direction, providing a partial offset.

Manufacturing Holds Firm

The Manufacturing PMI Output Index climbed to 57.0 in July from 56.3 in June, signalling an acceleration in factory output. The headline Manufacturing PMI edged marginally lower to 53.9 from 54.2, but remained comfortably in expansion. This divergence — stronger output alongside a slightly softer headline — reflects a complex picture of rising production even as broader new-order momentum eased.

According to the flash data, growth in output and new business softened amid increasingly challenging market conditions, including competitive pressures, order cancellations, fewer client enquiries, and shortages of key raw materials.

Export Orders Accelerate to Four-Month High

Despite the moderation in domestic demand, export orders continued to strengthen, with the pace of growth accelerating across both manufacturing and services firms. At the composite level, international sales expanded at the fastest pace since March — a bright spot that suggests Indian exporters are gaining ground even as global conditions remain uncertain.

Pranjul Bhandari, Chief India Economist at HSBC, attributed part of the inventory build-up to renewed geopolitical pressures. 'The renewed tensions in the Middle East have once again resulted in firms building buffers to manage the uncertainties around the longevity of the supply-side shock. Finished goods and input inventories increased alongside a pick-up in purchasing volumes,' she said.

Bhandari further noted that manufacturing output and new export orders continued to rise even as overall manufacturing growth eased slightly, adding: 'Price pressures firmed, with output charge inflation gathering pace and signalling a renewed push to protect margins.'

Jobs Growth Continues, Confidence Dips

Employment in India's private sector expanded for the seventh consecutive month in July, though the pace of hiring remained modest. Services firms led job creation, while manufacturers continued to report a build-up in unfinished work — a signal of capacity constraints that could support further hiring in coming months.

Business confidence, however, eased to a six-month low in July. Optimism improved among manufacturers, but sentiment weakened in the services sector, with firms citing expectations of better market conditions and stronger demand over the coming year as the primary basis for any remaining positivity.

What This Means for India's Economy

The July reading reinforces that India's private sector growth engine remains running, even if not at peak revs. The composite index has held above 50 consistently, and the acceleration in export orders offers a cushion against domestic demand softness. This comes amid a broader global environment where supply chains remain disrupted by Middle East tensions, and where input cost pressures — flagged in this data — could feed into consumer prices in the months ahead. The next full PMI release will be closely watched to confirm whether July's services slowdown is a blip or a trend.