India’s private-sector activity improved sharply in September after falling to multi-year lows in the previous two months. The HSBC Flash PMI showed a sharp improvement in private-sector output in September, with manufacturing activity showing a particularly strong improvement.

The HSBC Flash India PMI Composite Output Index, a weighted average of manufacturing and services PMI indices, rose to 56.5 in September from 54.3 in August.

Private-sector companies recorded a faster increase in new business in September. Demand strengthened across both manufacturing and services sectors, though the acceleration was more pronounced among goods producers as renewed tensions in West Asia once again led firms to build buffers to manage uncertainty.

The HSBC Flash India Manufacturing PMI rose to 55.7 in September from a five-year low of 52.8 in August. At 55.7, the manufacturing PMI was at a seven-month high. The improvement was supported by stronger growth in output and new orders. The sector also recorded a faster increase in input buying and shorter supplier delivery times. Input stocks rose to their highest level since February, while growth in finished-goods inventories climbed to an 11-and-a-half-year high. The HSBC Flash India Services PMI rose to a three-month high of 55.8 in September from 54.1 in August. That said, flash PMI readings have tended to be marginally higher than the final readings.

The government will borrow ₹7.86 trillion through dated securities in October-March, taking gross market borrowing in 2026-27 to ₹16.00 trillion, marginally lower than the ₹16.09 trillion announced in March. Though the Budget announced a gross market borrowing of ₹17.20 trillion, gross market borrowing was reduced to ₹16.09 trillion following switches of government securities maturing in 2026-27.

Growth in the Index of Core Industries slowed to a three-month low of 4.8% in August from a downwardly revised 5.0% a month earlier. The moderation was mainly due to a sharp slowdown in iron ore output growth to 5.5% from 29.5% a month earlier. Contractions in coal, crude oil, natural gas, and fertiliser output also contributed to the moderation.

The Office of the Economic Adviser, which compiles the Index of Core Industries, recently introduced a new index by adding iron ore as the ninth industry to the existing eight sector – coal, crude oil, natural gas, refinery products, fertilisers, steel, cement, and electricity. Cement and electricity were the only sectors to record double-digit growth, at 12.5% and 11.6%, respectively, in August. Crude oil output contracted for the 20th consecutive month, natural gas output for the 26th, and fertiliser output for the sixth in August. Coal output contracted 3.8% in August, compared with growth of 7.6% a month earlier.

Domestic air passenger traffic contracted for the third consecutive month amid the war in West Asia and higher airfares after a sharp rise in crude oil prices. Passenger traffic declined 6.3% year-on-year to 12.13 million in August. This was the fifth year-on-year decline in domestic passenger traffic over the last six months. IndiGo, which accounts for about 65% of the domestic passenger market, carried 7.89 million passengers in August, down 5.1% from a year ago. The Air India Group carried 3.23 million passengers, down 8.7% year-on-year. The continued contraction in domestic air passenger traffic raises questions about the strength of domestic demand despite the robust economic growth reflected in GDP data.

Renewable electricity generation in the country, excluding large hydroelectric projects, rose 39.2% year-on-year to 38.79 billion units in August, driven by sharp increases in solar and wind power generation. Solar power generation in August rose 47.4% year-on-year to 18.63 billion units, while wind generation increased 38.2% to 17.82 billion units. Electricity generation from large hydroelectric projects fell 11.9% to 20.71 billion units. Consequently, renewable energy generation, including output from large hydroelectric projects, rose 15.8% to 59.50 billion units in August.

Total electricity generation in the country, including generation from thermal and nuclear sources, increased 13.2% to 182.95 billion units in August. Renewable sources, including large hydroelectric generation, accounted for 32.5% of total electricity generation in August, up from 31.8% a year earlier.

Net foreign direct investment in India rose to a more than six-year high of $7.35 billion in July, primarily on account of a sharp increase in gross FDI. Net FDI stood at $2.08 billion in June and $4.48 billion a year ago. Gross FDI in July rose to a 71-month high of $14.58 billion from $8.84 billion in June and $11.75 billion a year ago. FDI repatriation in July fell to $3.84 billion from $4.61 billion a month earlier and $4.57 billion a year earlier, while overseas investments by Indians rose to $3.39 billion from $2.15 billion in June and $2.70 billion a year ago.

Overall foreign investment flows rose to a more than five-year high of $11.46 billion in July, compared with $4.39 billion in June and $1.95 billion in July last year. Net portfolio investment was $4.11 billion, up from $2.31 billion a month earlier and an outflow of $2.53 billion a year ago.

Net FDI inflows in April-July rose 38.1% year-on-year to $13.43 billion, while gross FDI inflows increased 12.6% to $43.85 billion.

Indian banks and public sector companies mobilised foreign currency inflows of $143.60 billion as of September 18 through the special dollar-rupee forex swap facilities announced by the Reserve Bank of India. The swap facilities for FCNR(B) deposits, external commercial borrowings by public sector companies, and overseas foreign currency borrowings by banks were notified by the central bank on June 8.

The bulk of the inflows was under the FCNR(B) scheme, which closed on August 31, and accounted for $132.98 billion. External commercial borrowings by public sector companies accounted for $5.30 billion, while overseas foreign currency borrowings by banks stood at $5.32 billion. The swap facilities for external commercial borrowings and overseas foreign currency borrowings are open until December 31.

India’s foreign exchange reserves fell sharply in the week to September 18, likely reflecting intervention by the Reserve Bank of India amid pressure on the rupee. As of September 18, foreign exchange reserves fell by $14.88 billion from a week earlier to $765.90 billion. Foreign currency assets declined by $14.82 billion to $630.98 billion, while gold reserves rose by $67 million to $111.29 billion. The decline in reserves came amid pressure on the rupee due to higher crude oil prices and US Treasury yields, prompting the RBI to intervene in the foreign exchange market. The rupee had briefly fallen below the 96-per-dollar mark during the week.

The rupee’s real effective exchange rate rose in August, driven by higher domestic inflation relative to major trading partners and the rupee’s appreciation in nominal effective exchange rate terms. The 40-currency trade-weighted real effective exchange rate index rose to 92.00 in August from 91.78 a month earlier.

The latest data indicated that the rupee remained relatively undervalued against the currencies of its major trading partners. Though tensions in West Asia and high crude oil prices weighed on the Indian rupee for most of August, strong FCNR(B) deposit inflows supported a recovery towards the end of the month.

Reservoir storage declined marginally from a week earlier, marking the first week-on-week decline in 12 weeks. As of September 24, live storage in 178 reservoirs declined by 0.42 billion cubic metres from a week earlier to 130.75 billion cubic metres, accounting for 71% of live storage capacity. Live storage was 21% below last year’s level and 12% below the 10-year average. Reservoir storage is typically replenished during the southwest monsoon.

India was on course for its first deficient southwest monsoon season in 11 years. As of September 25, cumulative rainfall across the country was 736.4 millimetres, or 87% of the long-period average. Among the four regions, rainfall was 75% of the long-period average in East and Northeast India, 78% over the South Peninsula, 89% over Northwest India, and 97% over Central India. Rainfall was 65% of the long-period average in June, 101% in July, and 84% in August, while it was 89% of the long-period average so far in September.

As the sowing season nears its end, the total area sown under kharif crops was 110.77 million hectares as of September 25, down 1.2% from a year ago. Rice acreage declined 3.6% to 43.09 million hectares. Area under pulses rose 2.0% to 12.06 million hectares, while that under oilseeds was 19.52 million hectares, up 0.1% from a year ago. Among cash crops, sugarcane acreage declined 0.7% to 5.85 million hectares, while cotton area fell 1.0% to 10.97 million hectares. Notwithstanding the year-on-year decline, the area sown so far accounted for 100.3% of the normal kharif area of 110.45 million hectares.

Coming up

• September 28: Index of Industrial Production for August
• September 30: Government finances for April-August
• October 1: GST collections for September
• October 1: HSBC India Manufacturing PMI for September 

Tailpiece
Outward remittances from India under the Liberalised Remittance Scheme stood at $2.58 billion in July, up from $2.55 billion in June and $2.45 billion in July last year. About 57% of the remittances were for travel, followed by 13% for investment in equity and debt and 11% for maintenance of close relatives.