Buoyant Demand Drives Growth in the Indian Services Sector

The HSBC India Services Business Activity Index rose from 60.6 in February to 61.2 in March, indicating one of the strongest growth rates seen in over 13-and-a-half years. This growth was primarily fuelled by healthy demand conditions, efficiency gains, and positive sales developments. A Reading above 50 is a sign of expansion and a reading below 50 is a sign of contraction.

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Record Expansion and New Export Orders

March witnessed remarkable growth in total sales and business activity, attributed to a series record upturn in new export orders. This surge in demand led to increased pressure on service providers' capacity, resulting in the joint-fastest rise in employment since November 2022.

New Order Intakes and Export Business

March data also showcased a substantial improvement in new order intakes, with growth rates resembling those not seen since June 2010. Both domestic and international demand contributed to this surge, with new export business rising at the fastest rate since September 2014, spanning regions such as Africa, Asia, Australia, Europe, the Americas, and the Middle East.

Cost Pressures and Price Inflation

However, the growth momentum was accompanied by intensifying price pressures, as both input costs and output charges increased at faster rates. Rising labor and material costs contributed to a marked increase in overall expenses at service firms. Consequently, companies raised their selling prices in response, with the rate of charge inflation reaching its highest mark since July 2017.

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Aggregate Output and Composite PMI

March data also reflected a sharp increase in aggregate output across India, with both goods producers and service providers noting a pick-up in growth. The HSBC India Composite PMI Output Index rose to 61.8, marking the second-strongest upturn in over 13-and-a-half years.

Price Pressures Across Sectors

Demand strength in India contributed to notable price pressures, with input costs rising markedly across the private sector. Selling price inflation reached a five-month high, outpacing its long-run average, primarily driven by an acceleration in the service economy.

Overall, the data indicates a vibrant and resilient Indian services sector, driven by robust demand and positive growth trends, despite challenges posed by rising costs and competitive pressures.

 Also Read: RBI Monetary Policy: Rates Remain Unchanged, Growth Outlook Bright