New Delhi: India’s services sector growth slowed to a five-month low in May due to weakness in domestic demand even though exports increased at a robust pace, an industry survey report released by S&P Global showed on Wednesday.
Purchasing Managers’ Index (PMI) for services declined from 60.8 in April to 60.2 in May, the lowest level since December. The PMI print above 50 indicates growth in the sector while below 50 shows contraction.
“India’s service activity rose at a slightly softer pace in May, with domestic new orders easing slightly, but remaining robust, implying strong demand conditions and successful advertising,” said Maitreyi Das, global economist at HSBC.
The pace of growth in new orders was the slowest in the calendar year-to-date. Fierce competition and extreme heat across the country dampened growth.
One area that improved substantially in May was new export orders, with growth climbing to the fastest seen since the inception of the series in September 2014. Survey participants noted strong growth of demand from Asia, Africa, Europe, the Middle East and the US.
Services PMI data is based on a survey of around 400 services companies. Data is compiled by S&P Global.
Another positive takeaway from the survey is a rebound in business confidence. During the month of May the business confidence was the strongest in eight months. Expectations that marketing efforts will bear fruit, coupled with improved customer engagement, demand strength and buoyant economic conditions boosted business confidence among service providers.
Strong business confidence boosted hiring. Companies reported having hired junior and mid-level workers in May. The pace of hiring by the services firms was the sharpest since August 2022.
Meanwhile, cost pressures intensified in May. According to panel members, outlays on materials and labour rose. With regards to the former, there were mentions of higher prices for meat, packaging and vegetables, S&P Global noted in the report.
While some companies suggested that additional labour costs stemmed from overtime payments and upward salary revisions due to demand strength and productivity gains, several firms indicated having taken on extra staff, it said.
“On the price front, cost pressures ticked up in May led by higher raw material and labour costs. Firms were only able to transfer a part of the price rise to customers,” said Das.
Overall composite output rose at a slightly slower pace, led by slower rises in both factory production and service activity.
Manufacturing PMI declined to a three-month low of 57.5 in May from 58.8 recorded in the previous month. In its report released on Monday, S&P Global noted that manufacturing production was hit during the month of May due to heatwaves.