India's factory output in May expanded at the quickest pace in the last 31 months owing to strong demand and output, while improved optimism led firms to hire at the fastest rate in six months, a private survey showed on Thursday.
The Manufacturing Purchasing Managers' Index, compiled by S&P Global, rose to over a 2-1/2 year high of 58.7 in May from April's 57.2. Reuters had pegged a drop to 56.5. It remained above the 50-mark separating growth from contraction for a 23rd consecutive month.
"While the upturn in domestic orders strengthens the foundations of the economy, rising external business foster international partnerships and boost India's position in the global market," said Pollyanna De Lima, economics associate director at S&P Global in a press release.
"Combined, they also generated more employment opportunities in May."
Data showed new orders expanded at the quickest pace since January 2021, while foreign demand grew at its fastest rate in six months. Higher orders saw the quantity of purchases of items accelerating at the highest pace in over 12 years.
Thanks to strong demand, firms were able to hire at the strongest rate since November 2022 and optimism around future business activity rose to its highest in five months.
That also allowed firms to pass on higher charges to their clients and pushing output price inflation to a year high, even as input costs increased at a slower pace.
"Demand-driven inflation is not inherently negative, but could erode purchasing power, create challenges for the economy and open the door for more interest rate hikes," added De Lima.
Data released Wednesday showed that the Indian economy grew by 6.1 per cent, beating analyst estimates that helped push the annual growth rate to 7.2 per cent.
The growth was boosted by a 5.5 per cent expansion in agriculture and a 4.5 per cent growth in manufacturing.