India's economy held steady in May with its manufacturing PMI slipping slightly to 54.3 from 54.7 in April, while the services PMI remained nearly flat at 58.9 compared to 58.8 the previous month. The composite PMI recorded 58.1 in May, virtually unchanged from April’s 58.2, indicating ongoing expansion in economic activity since readings above 50 signal growth [1, 2].
Pranjul Bhandari, chief India economist at HSBC, said, "The Manufacturing PMI remained broadly in line with its long-run average, supported by continued inventory building" [2]. However, HSBC also noted that "growth across India’s private sector economy faded slightly halfway through the first fiscal quarter," with slower gains in new orders, exports, employment, and business activity [2].
The modest cooling comes against the backdrop of a nearly three-month conflict with Iran that started in late February. The war led to closure of the Strait of Hormuz, triggering a surge in Brent crude oil prices of more than 50% [2]. Rising fuel costs and supply shocks have driven India’s government to raise fuel prices, restrict gold imports, and tighten currency-market rules to shield the economy from larger shocks [2]. Prime Minister Narendra Modi urged citizens to cut fuel use and limit non-essential travel to help conserve foreign exchange reserves [2].
Meanwhile, India’s rupee plunged to a fresh low of nearly 97 to the U.S. dollar in mid-June. The Reserve Bank of India is reportedly considering several measures to stabilize the currency, including interest rate hikes, currency swap agreements, and tapping overseas investors for dollars [2].
The flash PMI data for May confirms that despite external pressures from the energy crisis and currency volatility, India's private sector maintained steady growth going into the new fiscal quarter. The RBI’s forthcoming monetary policy decisions will be closely watched as the central bank responds to the rupee’s weakness and costly oil imports.
