India’s services sector growth hits 10-month high in June

India's services sector has achieved its strongest growth in 10 months, with the HSBC India Services PMI Business Activity Index rising to 60.4 in June, up from 58.8 in May. This marks the highest level of expansion since August 2024, fuelled by a surge in new orders, both domestically and internationally. The robust increase in new business orders, particularly in the domestic market, contributed significantly to the growth in June. Service providers reported positive demand trends, with new orders expanding at the fastest rate since August 2024. Export orders also saw a rise, though at a slower pace, driven by growing demand from Asian, Middle Eastern, and US markets.

Pranjul Bhandari, Chief India Economist at HSBC, noted, “The Services PMI business activity index was up to a 10-month high, led by a sharp rise in new domestic orders. New export orders also expanded, albeit at a softer pace.” The overall expansion was broadly spread across sectors, with Finance & Insurance leading the growth, while Real Estate & Business Services saw the slowest increases.

Employment growth and easing price pressures

The ongoing expansion in the service sector continued to support job creation, marking the 37th consecutive month of employment growth in June. While the rate of job creation slowed slightly compared to May's record pace, it still outpaced the long-run average.

On the price front, inflationary pressures eased, with both input cost and output charge inflation softening from May. However, the Consumer Services sector experienced the highest cost pressures, while Finance & Insurance saw the steepest rise in output charges. Despite the easing in price pressures, service providers remained optimistic about future growth, although their confidence slightly waned compared to earlier in the year.

Mixed outlook for India's economy

While the service sector showed strong growth, overall optimism regarding future output levels has softened. According to the survey, only 18 per cent of service providers are forecasting growth in the next 12 months, down from earlier highs. Despite this, the overall expansion in the services and manufacturing sectors helped the HSBC India Composite PMI Output Index rise to 61.0, its highest level in 14 months.

India’s services sector, which represents more than half of the country’s GDP, remains a key driver of economic performance, especially as international demand continues to grow. However, the slowdown in GDP growth expectations, coupled with fluctuating confidence, signals a cautious outlook as the country navigates an uncertain global economic environment.