Week in Numbers: Tracking India’s Economic Pulse

Manufacturing activity in India slowed to one of its weakest levels in four years amid uncertainty over the war in West Asia. The HSBC India Manufacturing Purchasing Managers’ Index fell to a three-month low of 54.2 in June from 55.0 in May, with growth in new orders and output easing to among the weakest in four years. The June PMI reading was the second-weakest since mid-2022. That said, it remained in line with the long-run series average.

The data showed that the capital goods segment was the main driver of the slowdown, with a notable deceleration in growth, while consumer and intermediate goods producers grew faster.

International demand for Indian goods continued to strengthen in June, but the pace of expansion was modest and the weakest in 39 months, amid weaker demand from some European markets.

As demand growth moderated, manufacturers became more reluctant to raise prices. Output prices increased at the slowest pace in three months. Indian manufacturers also faced easing cost pressures, with input prices rising at the slowest pace since February.

Service-sector activity also lost momentum as challenging market conditions and weaker client demand for certain services weighed on sales and output growth. However, new export orders increased at the fastest pace in three months.

The HSBC India Services PMI fell to a 17-month low of 57.4 in June from 59.8 in May. Despite the moderation, the index remained comfortably above its long-run average, indicating a historically strong pace of expansion. The slowdown in services output was driven by the weakest growth in new orders in over two and a half years.

Input costs continued to rise in June, although the rate of inflation remained moderate by historical standards. Cost inflation eased to its weakest level since November, falling below its long-run average.

 

Overall economic activity softened in June as both the manufacturing and service sectors expanded at a slower pace. Reflecting the moderation, the HSBC India Composite PMI fell to a three-month low of 57.1 in June from 59.3 in May.

With the ceasefire between the US and Iran holding and crude oil continuing to ease, economic activity is likely to strengthen in the coming months.

 

India’s industrial production growth accelerated to a five-month high of 5.1% in May from 4.9% a month earlier, driven by a sharp pickup in the electricity and gas supply sector, which expanded 9.9%. Manufacturing, which accounts for 76.1% of the Index of Industrial Production, grew 5.5%, while the water supply, sewerage and waste management sector also expanded 5.5%. Mining and quarrying, however, remained a drag, contracting 1.6%. Within the use-based classification, capital goods continued to record robust growth, rising 12.9% year-on-year in May, while consumer durables grew 7.2%. The sustained strength in the capital goods and consumer durables segments points to resilient investment activity and consumer demand.

The Ministry of Statistics and Programme Implementation, which compiles the Index of Industrial Production, has adopted the Output Producer Price Index as the deflator, replacing the Wholesale Price Index. Accordingly, the new IIP series, released on June 1, uses the Output Producer Price Index as its deflator.

The Indian government posted a fiscal surplus of ₹2.00 trillion in May, driven by the Reserve Bank of India’s record surplus transfer of ₹2.87 trillion. The government had posted a fiscal surplus of ₹1.73 trillion in May last year, when the RBI transferred a surplus of ₹2.69 trillion. However, the government’s cumulative fiscal deficit for April-May widened to ₹1.62 trillion from ₹132 billion in the corresponding period a year earlier, as the April deficit nearly doubled from a year ago.

The government’s total expenditure in April-May rose 18.1% year-on-year to ₹8.81 trillion, even as total receipts fell 2.0% to ₹7.19 trillion. Revenue expenditure increased 20.1% to ₹6.30 trillion during the first two months of the financial year, while capital expenditure rose 13.4% to ₹2.51 trillion.

 

The government’s gross tax collections rose 5.9% year-on-year to ₹2.58 trillion in May, driven primarily by strong growth in corporate tax and customs duty collections. Corporate tax collections increased 34.0% to ₹315 billion, while customs duty collections rose 48.8% to ₹228 billion during the month. The sharp increase in customs duty collections may have been driven by the hike in the import duty on gold to 15% from 6%. India’s gold imports rose 34.0% year-on-year to $3.42 billion in May. Excise duty collections, however, declined 21.5% to ₹208 billion in May, likely reflecting the reduction in excise duty on petrol and diesel.

In April-May, gross tax collections rose 1.8% to ₹5.25 trillion. The slower growth was primarily due to a 12.2% year-on-year decline in goods and services tax collections to ₹1.88 trillion and a 19.7% contraction in excise duty collections to ₹212 billion during the two-month period. GST collections declined because the government discontinued the GST compensation cess and settled integrated GST dues early this year. The Union Budget has projected gross tax collections to grow 9.4% in 2026-27 to ₹44.04 trillion.

 

Goods and services tax collections rose 13.9% year-on-year to ₹1.95 trillion in June. However, the year-on-year comparison is not strictly like-for-like because this year’s collections include a portion of the erstwhile GST compensation cess that has been subsumed into GST rates following the government’s restructuring of the indirect tax regime. Net GST collections, after refunds, rose 11.2% to ₹1.62 trillion.

Bank lending rates firmed up marginally in May. The weighted average lending rate on fresh rupee loans rose by 1 basis point to 8.51%, while the weighted average rate on new term deposits rose 5 basis points to 5.84%. Since the start of the monetary easing cycle in February 2025, the weighted average lending rate on fresh rupee loans has declined by 82 basis points, compared with a cumulative 125-basis-point reduction in the policy repo rate. Over the same period, the weighted average rate on new term deposits has fallen 82 basis points.

 

Growth in bank loans accelerated in May, with non-food bank credit rising to 17.4% year-on-year as of May 31 from 15.8% a month earlier and 8.8% a year earlier. Credit to industry accelerated to 17.5% from 15.1% in the previous month and 5.3% a year ago, while credit to services increased to 20.4% from 18.6% a month ago and 8.4% a year ago. Agricultural credit accelerated to 14.9% from 13.7% a month earlier and 7.5% a year earlier. Growth in personal loans moderated to 15.4% from 16.0% a month ago, but remained higher than 11.1% a year ago.

Annual inflation, based on the CPI for Industrial Workers, rose to a 27-month high of 4.72% in May from 4.46% a month earlier, largely due to a sequential rise in food and beverage prices. Inflation based on the headline CPI Combined rose to a 16-month high of 3.93% in May.

India’s services trade surplus narrowed to a nine-month low of $15.72 billion in May, down from $18.60 billion a month earlier, as export growth slowed. Services exports rose 2.8% year-on-year to $33.36 billion in May, the slowest growth in seven months, while import growth moderated to 5.6% year-on-year to $17.64 billion. Including merchandise trade, the overall trade deficit widened to $10.57 billion in May from $9.78 billion a month earlier.

India’s foreign exchange reserves fell to their lowest level since March 2025 as gold prices eased. The reserves declined by $5.65 billion to $666.93 billion in the week ended June 26. Gold reserves declined by $5.39 billion to $102.54 billion, while foreign currency assets fell by $150 million to $541.07 billion. India’s foreign exchange reserves are likely to rise significantly in the coming weeks. The Reserve Bank of India and the government have announced several measures to attract foreign flows, including a concessional forex swap facility for public sector units raising external commercial borrowings and a facility covering hedging costs for banks mobilising foreign currency non-resident deposits.

 

Reservoir storage is becoming a concern, with levels continuing to fall as the southwest monsoon remains sharply below normal across most parts of the country. As of July 2, live storage in reservoirs stood at 47.73 billion cubic metres, equivalent to 26% of the total capacity and 39% lower than a year ago. Live storage was 1% below the 10-year average — the first time in about two years that reservoir levels have fallen been below the long-term average. Typically, reservoir storage levels start rising in June.

 

 

The southwest monsoon has remained significantly below normal so far. As of July 3, cumulative rainfall over the country was 31% below normal at 131.0 millimetres. Of the country’s four regions, rainfall was 21% below normal over northwest India, 41% below normal over east and northeast India, 31% below normal over central India, and 21% below normal over the south peninsula.

The southwest monsoon rainfall in June was 39% below normal at 101.1 millimetres. The rainfall during the month was the fifth-lowest in June since 1901. The four years with lower June rainfall were 87.6 millimetres in 2009, 91.9 millimetres in 1905, 92.8 millimetres in 2014, and 96.7 millimetres in 1926.

Kharif sowing has slowed sharply as the southwest monsoon has remained patchy across much of the country. The total area sown under kharif crops fell 22.7% year-on-year to 18.27 million hectares as of June 25. Rice acreage, which typically accounts for about one-third of the total kharif cropped area, declined 25.2% to 2.58 million hectares. Sowing of pulses fell 30.5% to 1.49 million hectares, while oilseed acreage fell by 53.3% to 1.70 million hectares. In contrast, sugarcane sowing, which is nearing completion, rose 1.2% to 5.73 million hectares. Even so, the sowing season is in its early stages, with only 17% of the normal kharif area of 110.45 million hectares covered so far.

Coming up

• July 13: Consumer Price Index for June
• July 14: Output Producer Price Index for June
• July 15: Balance of payments for May 

Tailpiece
Indian crude oil basket averaged $83.22 per barrel in June, down 21.7% from $106.22 per barrel in May. As of July 2, the Indian crude oil basket was $67.16 per barrel.