Coming at the heels of higher-than-expected GDP growth figures in the first quarter (April-June) of this fiscal, the HSBC India Manufacturing Purchasing Managers’ Index (PMI) indicated the “fastest improvement in operating conditions for 17-and-a-half years.” At 59.3 in August, the figure was superseded last in mid-2008. Earlier, the country’s quarterly real GDP growth rate “comfortably beat expectations,” as it clocked 7.8 per cent, compared to 6.5 per cent in the same period last year.
According to the HSBC report, “Indian manufacturing growth gained momentum in August, with ongoing improvements in demand continuing to underpin robust increases in factory orders and position.” It added, “Companies upped the pace at which additional materials were bought, and more jobs were created, partly reflecting positive expectations regarding the outlook. Incoming new orders rose to broadly the same extent as July, which was the fastest in 57 months.”
Couple this with the huge uptick in GDP, which reflects the size and health of an economy. Real GDP growth rate is an important figure as it measures the economic output after removing the effects of inflation. In the last quarter, the three sectors of the economy, primary (agriculture, livestock, forestry and fishing, and quarrying), secondary (manufacturing, electricity, gas, water supply and other utilities, and construction), and tertiary (services) showed robust performances. Thus, there was momentum in the entire economy.
Primary sector grew by 3.7 per cent, up from 1.5 per cent in the same period last fiscal. Manufacturing (7.7 per cent) and construction (7.6 per cent) led the growth in the secondary sector. Tertiary sector performed the best with a growth of 9.3 per cent, much above 6.8 per cent in Q1 ’25. “On the supply side, we have seen an all-round growth. On the demand side, the primary drivers have been domestic. In our economy, net exports do not contribute so much,” said Anuradha Thakur, economic affairs secretary, finance ministry.
The Index of Industrial Production (IIP), which tracks a basket of industrial products, grew by 3.5 per cent in July 2025, against 1.5 per cent in the previous month, “driven by 5.4 per cent growth in the manufacturing sector.” According to a Government press release, “Within the manufacturing sector, 14 out of 23 industry groups recorded positive growths…. The top three positive contributors… were basic metals, electrical equipment and non-metallic minerals.”
What is important is that the PMI report indicated a slower increase in export orders, which grew at the slowest pace in the past five months. This implies that the impact of the US tariffs was felt in August. “The increase of the US tariff… might have contributed to the slight easing in new export orders growth, as American buyers refrain from placing orders in the midst of tariff uncertainty,” said Pranjul Bhandari, chief India economist, HSBC.
Both private and government consumption seem to be on track in the first quarter of this fiscal. Although private consumption showed a decline, to seven per cent this time from 8.3 per cent in the corresponding period last year, there was a rebound in rural demand. The villages made up for the decline in urban areas to an extent. But in the case of government consumption, the growth rate was 9.7 per cent compared to the earlier four per cent. This implies that the Government spending on goods and services to “directly satisfy the collective needs of its population has bounced back.”
Although the latest quarterly figure for core inflation was higher, up from 3.1 per cent to 4.3 per cent QoQ, both food inflation and consumer-linked inflation took huge dips. Food prices increased by a meagre 0.6 per cent, with a negative growth of nearly two per cent in July 2025. Consumer inflation declined from 4.9 per cent to 2.7 per cent QoQ, and further to 1.55 per cent in July 2025.