India’s services sector continued to grow at a strong pace in May, supported by a sharp rise in export orders and record hiring, even as price pressures intensified, according to the HSBC India Services Purchasing Managers’ Index (PMI) released on Wednesday.
The index, compiled by S&P Global, rose marginally to 58.8 in May from 58.7 in April, indicating robust expansion as it stayed well above the 50-mark that separates growth from contraction. However, the reading was lower than the preliminary estimate of 61.2.
New business inflows remained strong, broadly in line with the momentum recorded from February to April. Firms credited the consistent demand to successful marketing efforts, repeat orders from existing clients, and favourable business conditions.
International demand stood out in particular. Export orders grew at one of the sharpest rates seen in the survey’s more than 10-year history, reflecting India’s growing services trade footprint.
To meet the rising demand, service providers increased hiring at the fastest pace since the survey began in 2005. Nearly 16 per cent of respondents reported higher headcounts, marking a historic high in workforce expansion.
However, this robust hiring spree contributed to higher cost pressures. Input prices and output charges rose at a faster pace in May, with businesses citing increased costs for cooking oil, raw materials, meat and overtime wages. The result was the steepest input price inflation recorded since January.
The rising price pressures come at a time when the Reserve Bank of India (RBI) is navigating monetary easing. With inflation still below the central bank’s 4 per cent target, the RBI has already reduced the repo rate by 50 basis points this year and is expected to cut it by another 25 bps to 5.75 per cent in its upcoming policy review on Friday, according to a Reuters poll.
Despite the cost challenges, business sentiment improved from April’s 23-month low. Companies expressed confidence about future growth, citing increased staffing, expanding client portfolios, and ongoing promotional activities as key drivers.
Meanwhile, the HSBC India Composite PMI Output Index — which captures both manufacturing and services — slipped slightly to 59.3 in May from 59.7 in April, signalling continued strong overall private sector activity.