India's Economic Momentum Strong in June-July Despite PMI Dip, BofA Says

India's high-frequency economic indicators showed strong momentum through June and July, driven by robust industrial activity and healthy government spending, according to a recent report from Bank of America. The data suggests underlying resilience in the economy despite a slowdown in some survey-based metrics and persistent global uncertainty.

Broad-Based Growth in Key Sectors

The bank's analysis pointed to several signs of strength, particularly in industrial output, which surged 7.3% in June, marking a 23-month high. This contributed to an average growth rate of 5.7% for the first quarter of fiscal year 2027, a significant acceleration from the 3.9% recorded in the previous quarter.

Other key indicators supporting the positive trend include:

• Manufacturing growth reached 7.8% year-over-year in June.
• Electricity generation climbed 10.6%.
• Government capital expenditure remained strong, growing 24% year-over-year in the first quarter.
• Goods and Services Tax (GST) collections, a key barometer of consumption, rose 15.4% year-over-year in July.

Mixed Signals from PMIs and Inflation

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Despite the strong production figures, both the manufacturing and services Purchasing Managers' Index (PMI) declined in July. The manufacturing PMI notably slipped to an approximately five-year low, signaling a potential contraction in sentiment among purchasing executives.

The inflation picture also remains complex. While overall cost pressures fell to a five-month low, selling prices increased and transportation costs remained elevated, according to the report. This dynamic presents a challenge for policymakers balancing growth and price stability.

External Position and Outlook

India's external position strengthened, with foreign reserves increasing by $13 billion from June to reach $682 billion in the third week of July. Bank of America attributed this gain to strong Foreign Currency Non-Resident (FCNR) bank account inflows, which totaled $40.2 billion.

Looking ahead, the progress of the August monsoon will be critical for rural economic activity and food inflation. This data provides a crucial backdrop for the Reserve Bank of India’s Monetary Policy Committee, which is scheduled to meet on Aug. 5.