India’s Services Sector Slows Amidst Robust Exports and Job Growth: A Detailed Analysis of May’s Economic Trends

In May, India’s services sector witnessed a slowdown in growth to a five-month low due to a weakening in robust domestic demand, as per a survey conducted by S&P Global, indicating a final HSBC India Services Purchasing Managers’ Index (PMI) of 60.2, down from April’s 60.8. Despite this, the index remained above the 50 mark, indicating expansion for the 34th consecutive month.

The new business sub-index, a crucial indicator of demand, remained strong in May but grew at its slowest pace this year, attributed to intense competition and heat waves affecting livelihoods across the country.

However, exports saw remarkable growth, reaching the highest pace in nearly a decade since the inclusion of the sub-index in the monthly survey, suggesting a positive outlook amidst global economic recovery, particularly in China and the U.S.

Strong sales projections for the next 12 months reached an eight-month high, prompting services firms to increase hiring at the fastest rate since August 2022, despite intensified price pressures in May compared to April.

Price pressures rose due to higher raw material and labor costs, leading firms to partially transfer the price rise to customers, potentially triggering inflationary concerns, which could influence the Reserve Bank of India’s monetary policy decisions.

The overall HSBC India composite PMI output index fell to a five-month low of 60.5 in May from April’s 61.5, reflecting a slight easing in business activity in both manufacturing and services sectors.

The sustained growth in both services and factory activity remains crucial for the new government elected on June 4, ensuring India’s position as the fastest-growing major economy, following a better-than-expected growth rate of 7.8% in the last quarter.

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