What tariff troubles? Export boom keeps India's services sector momentum steady in May

The ongoing uncertainty around US President Donald Trump's multi-front global trade war has little bearing on the Indian services sector.

That is yet another sign of robust economic momentum for the world's fastest-growing economy.

Last month, India's services sector sustained its robust momentum, bolstered by strong international demand and a record uptick in hiring.

That is according to the latest HSBC India Services PMI compiled by S&P Global.

The index increased to 58.8 in May from April's 58.7, marking the second consecutive monthly rise and indicating a good pace of expansion.

The index has now remained above the 50 mark—which separates growth from contraction—for 46 straight months.

The survey revealed that service providers across India benefitted from resilient demand conditions, new client acquisitions, and greater staffing capacity.

Survey participants cited advertising efforts, repeat orders, and a growing international appetite for Indian services as key drivers of new business growth.

Global indigestion, but Indian exports shine as hiring booms

A standout feature of May's performance was a surge in export orders amidst the uncertainty surrounding Trump's tariff rhetoric.

While the argument for front-loading of exports is doing the rounds on social media, the path of least resistance for demand for Indian goods is to the upside.

Indeed, the report noted that survey participants reported one of the biggest improvements in international demand in 19-and-a-half years of data collection.

Demand from Asia, Europe, and North America significantly increased India's global services footprint.

Only in May and June 2024 were faster increases in export orders recorded, highlighting the exceptional momentum seen last month.

Service providers continued to recruit additional employees to meet the ongoing expansions in new business intakes. Nearly 16 per cent of surveyed companies reported higher employment levels, while just 1per cent indicated a reduction. This led to the highest job creation rate in the survey's history.

"Strong international demand continued to fuel services activity, as evidenced by the new export business index's uptick from April," said Pranjul Bhandari, Chief India Economist at HSBC. "To keep up with swelling demand, India's service providers heavily increased staff recruitment."

Rising price pressures emerge

While output growth and hiring accelerated, inflationary concerns also emerged.

Companies reported higher input costs, particularly for items such as cooking oil, meat, and raw materials, as well as increased labour expenses due to overtime and recruitment.

As a result, input cost and output price inflation edged above historical averages, reaching their highest levels since 2025.

Still, despite the early readings of inflationary pressures on the rise, the Reserve Bank of India is widely expected to cut rates again this week after the 3-day meeting on Friday.

Demand turning?

On the demand side, work backlogs rose marginally, indicating easing capacity pressures likely due to the expanded workforce.

Business sentiment rebounded in May from a 23-month low in April, buoyed by expectations of continued sales growth, enhanced staffing, and effective marketing initiatives.

Meanwhile, the HSBC India Composite PMI Output Index, which combines manufacturing and services, registered a slight dip to 59.3 in May from 59.7 in April.

The marginal decline was attributed to a softer rise in manufacturing output, weighed down by geopolitical tensions and cost inflation.

Nonetheless, overall activity across India's private sector continued to grow sharply.

With services showing resilience even as manufacturing faces headwinds, India's economic expansion remains firmly supported by its dominant services engine.

Robust economic data, but the rupee needs RBI's protective hand

With the RBI set to cut rates again this week, the Indian currency has taken a slight hit.

The dollar's temporary recovery also weighs on the domestic currency apart from foreign stock outflows.

Still, the RBI has the capacity to intervene, as it has done over the last few years, to stabilize extreme currency movements.

Amit Pabari, Managing Director of CR Forex in Mumbai, said the central bank's massive forex war chest allows it to protect the currency from wild gyrations.

"RBI remains well-positioned to step in, with a comfortable reserve buffer of $693 billion, limiting the scope for any sharp rupee depreciation," said Pabari.

He added, "Additionally, robust domestic bond issuances support the rupee. These inflows continue to provide much-needed support to the rupee."