India’s service sector saw a significant boost in activity last month, driven by robust domestic and international demand. According to a recent business survey, the sector’s growth accelerated, reaching levels not seen in nearly two years.
Pranjul Bhandari, chief India economist at HSBC, highlighted the surge in new orders as a key factor. “Activity growth in India’s service sector accelerated in June … led by an increase in both domestic and international new orders,” she noted.
PMI Hits New Highs
The HSBC India Services Purchasing Managers’ Index (PMI), compiled by S&P Global, climbed to 60.5 in June from 60.2 in May. This figure aligns closely with a Reuters poll median forecast of 60.6 and a preliminary reading of 60.4. The PMI has remained above 50, indicating growth, for nearly three years.
Booming Demand and Record Export Orders
New business, a critical measure of demand, has consistently been above the breakeven point since August 2021. June saw a particularly notable expansion, driven by the fastest rise in international orders since the sub-index was introduced almost a decade ago. This surge in demand is promising for India’s economic outlook, especially as the country is already the seventh-largest services exporter globally, according to the Reserve Bank of India.
Job Market Strengthens
The strong demand also encouraged service providers to hire more staff. June witnessed the fastest pace of job creation since August 2022, marking over two years of continuous growth in hiring. This uptick in employment is a positive sign for the economy, reflecting the sector’s resilience and potential for further expansion.
Mixed Sentiment for the Future
Despite the overall growth, optimism among service providers for the year ahead has waned slightly. Concerns over market uncertainty and competition have led to the lowest level of positive sentiment in 11 months. Bhandari commented, “Overall, service providers remain confident about the year-ahead business outlook, although the level of optimism moderated sharply during the month.”
Cooling Inflation and Cost Management
Inflation seems to be cooling, with costs rising at the slowest pace in four months. The survey indicated that fewer than 5% of firms passed on cost burdens to clients, resulting in only a moderate rate of charge inflation. According to a Reuters poll, inflation is expected to fall below the Reserve Bank of India’s medium-term target of 4% this quarter but may pick up again in the next quarter. The central bank is anticipated to cut interest rates to 6.25% by year-end.
Composite PMI Reflects Broader Growth
The overall HSBC India Composite PMI, which includes both manufacturing and services, rose to 60.9 in June from 60.5 in May, matching the flash estimate. This growth reflects the combined strength of India’s manufacturing and services sectors, painting a positive picture of the country’s economic health.
In conclusion, June’s performance underscores the resilience and dynamism of India’s services sector, with record-breaking export orders and strong job creation leading the way. While future sentiment has tempered slightly, the current indicators point to a robust and growing industry.
Comments