India's services sector has witnessed a robust growth in June, according to a survey conducted by HSBC. The growth was primarily driven by strong domestic demand and a record increase in export orders. The survey, released on July 3, also highlighted that the strong demand led to service providers hiring more staff, with the pace of job creation touching a two-year high.
HSBC's India Services Purchasing Managers' Index (PMI), compiled by S&P Global, rose to 60.5 in June from 60.2 in May. This indicates a significant acceleration in activity growth in India's service sector. Pranjul Bhandari, HSBC's chief India economist, stated, Activity growth in India's service sector accelerated in June ... led by an increase in both domestic and international new orders.
The survey also revealed that new business has been above breakeven since August 2021 and expanded at a faster pace last month. This was supported by the fastest rise in international orders since the sub-index was added to the survey nearly a decade ago.
Confidence and Optimism in the Services Sector
Bhandari added, Overall, service providers remain confident about the year-ahead business outlook, although the level of optimism moderated sharply during the month. This confidence in the sector's future is a positive sign for the overall health of the Indian economy.
In terms of cost pressures, the survey indicated that costs rose at the slowest pace in four months, suggesting cooling inflation. Fewer than 5 per cent of firms surveyed opted to pass cost burdens to clients, resulting in only a moderate rate of inflation. This is a positive sign for the economy as it indicates that businesses are absorbing cost increases rather than passing them on to consumers, which could help keep inflation in check.
The survey also supports the positive outlook ahead as Commerce and Industry Minister Piyush Goyal has projected that India's goods and services exports are likely to increase by 3 per cent to surpass $800 billion in 2024-25.
RBI's Upward Revision and Future Growth Trajectory
The Reserve Bank of India (RBI) recently revised India's growth forecast upward to 7.2 per cent from 7 per cent earlier and sees the Indian economy heading towards a higher growth trajectory of 8 per cent and above. This upward revision by the RBI reflects optimism about the country's economic recovery and future prospects.
In comparison to India's robust services sector growth, Germany's services activity showed a slight slowdown in June, according to a survey by Reuters. Despite the slight loss in momentum, the services sector continues to expand at a solid rate, keeping Germany's economy afloat. The survey also showed that growth in new business and employment also slowed, while firms' expectations for the coming year slipped to a five-month low.
In the past, similar trends have been observed where strong domestic demand and export orders have led to robust growth in the services sector. For instance, in the aftermath of the 2008 financial crisis, India's services sector played a crucial role in driving the country's economic recovery.
The robust growth in India's services sector, driven by strong domestic demand and a record rise in export orders, is a positive sign for the economy. The sector's performance is likely to contribute significantly to India's overall economic growth and export earnings. However, it is crucial to monitor cost pressures and inflation trends to ensure sustainable growth in the long run. The upward revision of growth forecast by the RBI and the positive outlook projected by the Commerce and Industry Minister further reinforce the strong performance and potential of India's services sector.
