India's services sector peaks at 13-year high in March driven by strong demand

In March, India's services sector experienced a significant boost, driven by a surge in demand, as highlighted in the latest report by S&P Global released on Thursday.

This surge in demand propelled the sector to achieve remarkable growth rates, with the seasonally adjusted HSBC India Services Business Activity Index rising from 60.6 in February to 61.2 in March, marking one of the strongest growth rates seen in over 13-and-a-half years.

A PMI reading above 50 means expansion, while a reading below 50 shows contraction. March marked the 32nd consecutive month of expansion for the sector.

According to the March numbers, employment in the services industry rose at the quickest pace in seven months, and export business surged at a record rate.

"India’s services PMI rose in March, following a small dip in February, on the back of strong demand that spurred sales and business activity. Service providers increased hiring at the fastest pace since August 2023 to expand production capacity. Input costs rose at a faster rate, yet service providers were able to broadly maintain margins by charging higher output prices," said Ines Lam, an economist at HSBC.

According to the survey report, the service sector exhibited robust growth in March, signaling a significant improvement in new order intakes. As per the data, the rate of growth observed was one of the most substantial since June 2010, reflecting a promising trend for the country's economy.

The report highlighted better demand for Indian services both domestically and internationally, with new export business experiencing its fastest growth rate since the series commenced in September 2014. Survey participants noted increased demand from regions spanning Africa, Asia, Australia, Europe, the Americas, and the Middle East, indicating a broad-based uptick in economic activity.

Across the various segments of the service economy monitored by the survey, there were quicker increases in output and sales. Notably, Finance & Insurance emerged as the top performer in terms of growth.

However, amidst reports of escalating labor and material costs, services firms experienced a further increase in overall expenses. Input price inflation was marked, surpassing February's figures and exceeding its long-run average.

Responding to rising cost pressures and strong demand, companies raised their selling prices in March, with the rate of charge inflation reaching its highest point since July 2017. While three out of four broad areas of the service economy witnessed stronger increases in input costs and output charges, Real Estate & Business Services stood as the sole exception.

The substantial upturn in new business volumes added pressure on the capacities of service providers, resulting in a continuous rise in pending workloads. To cope with the demand, firms recruited additional staff in March, marking the twenty-second consecutive month of employment growth, and the joint-strongest since November 2022.

Despite the overall positive sentiment, business confidence dipped to a four-month low. While firms expect demand trends to remain favorable and view marketing efforts as growth opportunities, concerns linger regarding competitive pressures.