India’s services sector hits six-month high as domestic demand powers growth – Firstpost

India’s services sector regained momentum in May, with business activity expanding at its fastest pace in six months as robust domestic demand drove a sharp increase in new orders, reinforcing the economy’s resilience even as global uncertainties continued to weigh on sentiment.

The HSBC India Services Purchasing Managers’ Index (PMI), compiled by S&P Global, climbed to 59.8 in May from 58.8 in April, comfortably above the preliminary estimate of 58.9. The reading marked the strongest expansion since November 2025 and extended the sector’s growth streak to nearly four years. Any reading above 50 indicates growth in activity.

The latest survey underscores the growing importance of domestic demand in sustaining India’s economic expansion at a time when export-oriented sectors are navigating a more challenging global environment marked by trade tensions, slowing growth in major economies and policy uncertainty.

A key driver of May’s performance was a surge in new business inflows, which rose at the fastest pace in six months. Survey participants reported particularly strong demand across information technology, e-commerce and entertainment-related services, suggesting consumer spending and corporate activity remained broadly supportive despite external headwinds.

The services sector, which contributes more than half of India’s gross domestic product, has emerged as a critical growth engine as manufacturing activity stabilises and policymakers seek to maintain economic momentum.

Domestic demand offsets softer external environment

While overall business conditions strengthened, growth in international orders remained comparatively subdued. Export business increased modestly in May following a five-month low in April, but the pace of expansion remained below the levels seen through much of last year.

Businesses cited uncertainty surrounding a potential trade agreement with the United States and a volatile global economic backdrop as factors limiting stronger growth in overseas demand.

The divergence between domestic and external demand highlights a broader trend in the Indian economy, where resilient local consumption and investment continue to cushion the impact of softer global trade flows.

Hiring remains cautious despite strong activity

The survey also pointed to a disconnect between output growth and employment generation. Service providers continued to add workers during May, but hiring growth eased slightly from the previous month.

Notably, fewer than 7 per cent of surveyed firms reported recruiting additional staff, indicating that companies remain cautious about significantly expanding their workforce despite sustained growth in business activity.

The muted pace of job creation may reflect concerns about the durability of demand as well as efforts by firms to improve productivity before committing to larger hiring plans.

Cost pressures ease, offering relief to firms

On the inflation front, the survey delivered encouraging news. Input cost inflation moderated for a second consecutive month after reaching a 45-month high in March, signalling that some of the pricing pressures that have weighed on businesses earlier this year are beginning to ease.

As cost increases softened, companies also reduced the pace at which they raised prices for customers. The output price index fell to a four-month low, suggesting inflationary pressures within the services sector are becoming more manageable.

The easing in both input and output price growth could offer policymakers additional comfort as they balance supporting economic growth with maintaining price stability.

Confidence slips despite stronger growth

Despite the upbeat headline numbers, business sentiment weakened for a second straight month. The future activity index fell to 61.9 in May from 62.3 in April and remained below its long-run average, indicating firms are becoming more cautious about the outlook.

The decline suggests that concerns over global growth, trade negotiations and geopolitical uncertainties continue to temper corporate optimism even as current business conditions remain strong.

The broader economy also showed signs of strengthening. India’s Composite PMI, which combines manufacturing and services activity, rose to 59.3 in May from 58.2 in April, reaching its highest level in six months.

With inputs from agencies.