India’s services sector activity slowed to a five-month low in May as competition and rising prices weighed on it, according to a monthly survey released on Wednesday. However, a bright spot emerged with new export orders expanding at the fastest pace in a decade.
The seasonally adjusted HSBC India Services Business Activity Index fell to 60.2 in May from 60.8 a month earlier, its weakest reading since December 2023. A score above 50 indicates expansion in PMI terminology.
“Services activity rose at a slightly softer pace in May,” said Maitreyi Das, global economist at HSBC.
“Domestic new orders eased slightly but remained robust, suggesting strong underlying demand.”
The survey pointed to fierce competition and a recent heatwave as factors dampening growth. New business intakes, though robust, increased at the slowest pace so far this year.
A key positive was a surge in new export orders, which grew at the fastest clip since the survey began in September 2014. Survey participants reported strong demand from across the globe, including Asia, Africa, Europe, West Asia and the United States.
On the price front, companies faced rising input costs because of higher raw material and labour expenses. While some firms passed on a portion of the cost increases to customers, they were unable to fully offset the squeeze on margins.
Despite the slowdown, the survey highlighted a positive trend in the labour market. Employment increased markedly in May, reaching its strongest level since August 2022. This rise was attributed to factors such as increased workload, productivity gains, and upward salary revisions.
The slowdown in services was mirrored in the broader economy, with the HSBC India Composite Output Index slipping to 60.5 in May from 61.5 in April. This marked the slowest expansion since December 2023.
“Encouragingly, the level of optimism about the year-ahead outlook rose at the fastest pace in eight months,” added Das.
“This optimism led services firms to increase staffing levels, suggesting confidence in future growth prospects.”
