Business activity in India’s services sector continues to show resilience despite persistent input-cost pressures. The seasonally adjusted HSBC India Services PMI Business Activity Index rose from 58.8 in April to a six-month high of 59.8 in May. The improvement was driven largely by domestic demand, with new business orders increasing amid stronger demand for freight, digital solutions, e-commerce, entertainment and IT services.
New export orders also grew in May, albeit only marginally, after falling to a five-month low in April. Even so, the reading remained below the 2025 average. Survey respondents reported growth in international business from Australia, Canada, France, Germany, Hong Kong, Malaysia, the United Arab Emirates and the UK. The contours of the proposed US-India trade deal, now in the final stages of negotiation, remain a key monitorable.
While input-cost inflation in the services economy has moderated from the multi-month high recorded in March, it remains elevated relative to historical trends. PMI survey respondents cited higher food, fuel, gas, labour and material costs. The sub-index tracking input-cost inflation eased to a four-month low in May, providing some relief to service providers and allowing for a moderate increase in selling prices.
Services firms remain optimistic about business activity over the next 12 months, supported by expectations of favourable demand conditions. However, overall confidence slipped to a three-month low in May and was below its historical average.
“Some moderation in services sector growth is expected as real wage growth slows down with rise in inflation pressure,” said Gaura Sen Gupta, economist at IDFC First Bank. “Labour intensive trade hotels and transportation is likely to be impacted the most in the services sector with sharp rise in commercial LPG prices and moderation in passenger movement due to higher fuel prices.”
Echoing this view, a 3 June report by Barclays Research noted that port cargo traffic and international airline passenger traffic have softened materially from pre-conflict levels, with the surge in aviation turbine fuel prices 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 5 June assumes added significance as the economy navigates a challenging macro environment. With the rupee under pressure and rising upside risks to inflation, calls for a rate hike are growing louder.