India's services PMI surged to 59.8 in May, marking the highest level in six months and up from 58.8 in April, according to HSBC India Services PMI data released on Wednesday. This improvement indicates a strengthening of the services sector, driven by strong demand across multiple sectors including IT services, e-commerce, digital solutions, freight, and entertainment. As reported by HSBC, companies lifted activity to a greater extent and continued to add to payroll numbers amid the stronger new business growth. The PMI is derived from responses of 400 service sector companies covering consumer (excluding retail), transport, information, communication, finance, insurance, real estate and business services. The May PMI reading was the highest since November 2025, when it stood at 59.8, indicating sustained momentum in the services sector.
The services sector expansion was primarily supported by increased demand for IT services, e-commerce, digital solutions, freight and entertainment, which boosted new business growth. According to HSBC data, new orders placed with Indian service providers rose to the greatest degree in six months halfway through the first fiscal quarter, moving further away from the slowdown seen in March. New export business also grew in May, albeit only marginally, after falling to a five-month low in April, with firms citing gains from Australia, Canada, France, Germany, Hong Kong, Malaysia, the UAE and the UK. Consumer services remained the brightest spot, as growth of new business intakes and output outpaced those seen in the other three categories. Consumer services also topped the inflation rankings, recording the strongest increases in both input costs and output charges out of all four monitored sub-sectors. Healthy demand conditions, new client wins, and stronger new business intakes supported this momentum, with external demand for India-provided services also growing at a faster pace and rebounding after a sharp decline in April.
While cost pressures remained historically high across India's service economy, they receded to their lowest in four months, which supported a moderate increase in selling prices. As reported by HSBC, the rate of charge inflation eased to a four-month low, broadly matching its long-run average. The selling price increase was the softest since January, with input cost inflation easing which in turn reduced pressure on selling prices. Survey participants reported having paid more for food, fuel, gas, labour and materials compared to April, but the increase remained moderate with only 5 per cent of firms hiking their fees. However, West Asia crisis keeps cost pressures near a four-year high, as input cost inflation remained among the strongest seen in the past four years, primarily driven by higher energy, fuel, material, and transportation costs amid the ongoing conflict in West Asia. External demand for India-provided services also grew at a faster pace, rebounding after a sharp decline in April, contributing to the overall business expansion.
The Indian services companies signalled a further increase in payroll numbers, with the overall rate of job creation being solid and the second-fastest pace in just under a year (behind April). According to HSBC, fewer than 7 per cent of panellists signalled greater hiring and the vast majority indicated no change in headcounts. The expansion in international orders was nevertheless solid, with firms citing gains from several countries including Australia, Canada, and Germany, despite another increase in selling prices. Regarding the 12-month outlook for business activity, services firms collectively expressed optimism, generally expecting demand conditions to remain favourable and support output. However, the overall level of confidence slipped to a three-month low and was below the historical trend, suggesting firms are growing more cautious despite the headline strength. The PMI is a weighted average of indices measuring new orders, output, employment, suppliers' delivery times, and stocks of purchases, with a reading above 50 indicating expansion in manufacturing activity.
Despite strong current performance, several downside risks could challenge the services sector's momentum in the coming months. As noted by IDFC First Bank economist Gaura Sen Gupta, some moderation in services sector growth is expected as real wage growth slows down with rise in inflation pressure. The contours of the proposed US-India trade deal, now in the final stages of negotiation, remain a key monitorable factor. A Barclays Research report from June 3rd highlighted that port cargo traffic and international airline passenger traffic have softened materially from pre-conflict levels, with aviation turbine fuel price surges affecting international fares. Even after a US-Iran truce, supply chains could take months to normalize, keeping pressure on margins across both services and manufacturers. The Reserve Bank of India's policy meeting on June 5th assumes added significance as the economy navigates a challenging macro environment, with the rupee under pressure and rising upside risks to inflation.
