India’s Services Activity Growth at Five-Month Low: HSBC Report

New Delhi: Despite staying strong in the month of May, India’s growth in services sector activity slowed to a five-month low due to weakened domestic demand, fierce competition, price pressures and heat waves that affected livelihoods across the country. Even with the slow pace of growth, exports grew at a record pace and job creation rose to a 21-month high. The sector also remained above the 50 mark separating growth from contraction for the 34th straight month, a private survey showed on Wednesday.

As per the May data, the robust increases in new business intakes continued to underpin output growth across India’s service economy, though the seasonally adjusted HSBC India Services Business Activity Index fell to 60.2 in May from 60.8 a month earlier, showing its lowest mark since last December. “Survey participants attributed the figures to domestic new orders easing slightly while remaining robust, implying strong demand conditions and successful advertising,” the survey noted.

The survey also showed that rising sales, productivity gains, and demand strength reported the growth. However, the upturn was somewhat hampered by competitive and price pressures. “India’s service activity rose at a slightly softer pace in May, with domestic new orders easing slightly, but remaining robust, implying strong demand conditions and successful advertising,” said Maitreyi Das, Global Economist at HSBC.

On the price front, Das also said that cost pressures ticked up in May led by higher raw material and labour costs. Firms were only able to transfer a part of the price rise to customers. “Like for output, new orders rose at a substantial pace, but were the slowest in the calendar year-to-date, even as fierce competition and extreme heat across the country dampened growth.”

“One area that improved substantially in May was new export orders, with growth climbing to the fastest seen since the inception of the series in September 2014. Survey participants noted strong growth of demand from Asia, Africa, Europe, the Middle East, and the US,” the survey noted.

The survey also said that cost pressures intensified in May. Panel members, however, said that on materials and labour rose -- while some companies suggested that additional labour costs stemmed from overtime payments and upward salary revisions due to demand strength and productivity gains, several firms indicated having taken on extra staff.

“Not only did employment rise markedly, but also to the greatest extent since August 2022, the survey said. Outstanding business volumes rose at the quickest pace in nearly three-and-a-half years,” the survey noted, adding that the overall level of positive sentiment climbed to an eight-month high.