India's Manufacturing and Services Sectors Display Robust Growth Amid Rising Costs

India's manufacturing sector showed remarkable growth in the first four months of FY25, with the PMI at 58.1 in July 2024. Despite challenges like rising input costs, the sector continues to expand. Similarly, the services sector, driven by tourism, has witnessed significant growth, with the PMI Services Index at 60.3.

India's manufacturing sector has demonstrated significant resilience and growth in the first four months of FY25, according to the finance ministry's monthly economic review for July. The Purchasing Managers' Index (PMI) for Manufacturing stood at 58.1 in July 2024, marking one of the highest recorded values in recent years and well above the long-term average. This robust performance has been primarily driven by strong demand and a surge in production volumes, highlighting the sector's critical role in the nation's economy.

However, the sector has had to navigate considerable challenges, particularly surging input costs. July 2024 saw input cost inflation in manufacturing reach its highest level in nearly two years, influenced by rising prices for essential materials like coal, leather, packaging materials, paper, rubber, and steel. These rising costs have pressured manufacturers to increase output prices, which hit an 11-year high during the same month.

Despite these pressures, the Index of Industrial Production (IIP) reported a year-on-year (YoY) growth of 5.2 percent in Q1 FY25, up from 4.7 percent in the same period the previous year. Notable growth was recorded in the production of primary goods, intermediate goods, and consumer durables. Additionally, the index of eight core industries saw a YoY increase of 5.7 percent in Q1 FY25. Further insights from the Reserve Bank of India's (RBI) survey indicated an expansion in capacity utilisation within the manufacturing sector, rising to 76.8 percent in Q4 FY24 from 74.7 percent in the previous quarter. Stable business sentiment and a significant uptick in housing demand have further fueled momentum in the manufacturing sector.

Parallelly, the services sector has continued its strong performance, with the PMI Services Index at 60.3 in July 2024. This growth has been spurred by increased international sales, new order uptake, and rising export orders, despite encountering rising wage and material costs. The tourism sector, a cornerstone of the services industry, has shown impressive growth with cumulative Foreign Tourist Arrivals (FTAs) during January-May 2024 reaching 40.7 lakh, up from 37.3 lakh the previous year. Foreign exchange earnings from tourism during this period totalled Rs 1.1 lakh crore, marking a 22.5 percent YoY increase.

The World Travel and Tourism Council's 2023 report indicates that India's travel and tourism sector has fully recovered to pre-pandemic levels, contributing Rs19.3 lakh crore to the national GDP, a nearly 10 percent increase over pre-pandemic levels. Domestic tourism spending in 2023 surged to Rs14.6 lakh crore, 15 percent higher than pre-pandemic levels. India is projected to become the fourth-largest domestic travel market in terms of spending by 2030, further boosting the tourism and hospitality sectors.

(With inputs from agencies.)