India's Services Sector Booms in June Fueled by Record Export Surge

New Delhi: Buoyed by strong demand and a record rise in export orders, growth in India’s dominant services sector recovered in June from a five-month low in May. The growth also showed improvement in job creation amid a stronger rise in new orders and an expansion in international sales as well. The index of the sector has been above 50, which separates growth from contraction, for nearly three years, a private survey showed on Wednesday.

The seasonally-adjusted HSBC India services business activity in the purchasing managers' index (PMI) rose from 60.2 in May to 60.5 in June, pointing to a sharp expansion in output. “Demand strength and rising intakes of new business were cited as the key determinants of growth. New orders received by Indian service providers continued to increase in June, extending the current sequence of expansion to nearly three years,” the survey noted.

Commenting on the survey, Pranjul Bhandari, chief India economist at HSBC, said that activity growth in India’s service sector accelerated in June, with the index rising by 0.3 percentage point to 60.5, led by an increase in both domestic and international new orders. This encouraged services firms to increase their staffing levels at the fastest pace since August 2022.

“Input costs rose at a moderate pace, resulting in a softer up-tick in output charges in June. Overall, service providers remain confident about the year-ahead business outlook, although the level of optimism moderated sharply during the month. The composite PMI also accelerated in June, supported by greater inflows of new orders. Manufacturing firms also contributed more to the expansion than services firms,” Bhandari added.

The survey further noted that there was also a record expansion in international orders. “Asia, Australia, Europe, Latin America, the Middle East and the US were all cited as sources of new work from abroad. Positive client appetite encouraged service providers in India to recruit additional staff at the end of the first fiscal quarter. Staffing levels increased at the fastest pace since August 2022, as short-term and permanent staff were taken on to support pipelines of new work,” the survey said.

On the price front, the survey also noted that service providers recorded a moderate increase in their average expenses due to higher food, fuel and labour costs. “The pace of inflation was nevertheless the weakest in four months. Subsequently, selling prices also rose at the slowest pace since February. Going ahead, service providers remained confident of a rise in business activity over the course of the coming 12 months, with nearly 23 per cent of panellists expressing optimism,” it said.