India’s dominant services sector continued to show strong momentum in May 2025, fueled by growing export demand and record hiring levels, according to the latest HSBC India Services Purchasing Managers’ Index (PMI). The PMI reading of 58.8 in May remained well above the 50-point mark that separates expansion from contraction, marking nearly four years of uninterrupted growth.

Sustained Growth Driven by Export Demand and New Business

The expansion in the sector was largely powered by strong new business inflows, with companies attributing this to intensified advertising efforts, positive demand trends, and repeat business from existing clients. Particularly notable was the surge in export orders, which saw one of the strongest increases in over a decade, highlighting the global competitiveness and resilience of Indian service providers.

Record Hiring to Support Expanding Operations

To manage the increased workload, service providers ramped up recruitment at the fastest rate since the survey’s inception in 2005, with nearly 16% of companies increasing their workforce in May. This hiring spree underlines the sector’s optimism and its preparation to meet sustained demand in both domestic and international markets.

Rising Price Pressures Challenge Profit Margins

However, this expansion came with intensified price pressures. Both input costs and output charges increased faster than average, driven by higher expenses on essential inputs such as cooking oil, materials, meat, and overtime payments. This led to the strongest input price inflation since January 2025, testing profit margins and potentially influencing upcoming monetary policy decisions.

RBI’s Monetary Policy in Focus

The Reserve Bank of India (RBI) has already reduced the repo rate by 50 basis points this year to support growth, with inflation remaining below its 4% target. Market expectations suggest another rate cut of 25 basis points to 5.75% may be announced soon, as RBI balances growth ambitions with emerging inflation risks.

Business Confidence Recovers Despite Challenges

Despite rising costs, business confidence in the services sector rebounded from April’s near two-year low. Companies expressed optimism about future growth prospects, backed by larger client bases, expanded workforces, and ongoing marketing initiatives.

Broader Private Sector Expansion

The broader HSBC India Composite PMI, which includes both manufacturing and services sectors, slightly eased to 59.3 in May from 59.7 in April, but continued to indicate strong expansion in overall private sector activity, reflecting a resilient Indian economy.

In summary, India’s services sector remains a key engine of economic growth, powered by strong export demand and hiring, while navigating challenges of rising input costs and price pressures. The sector’s outlook remains positive as businesses prepare to capitalize on both domestic and international opportunities, supported by accommodative monetary policy measures.

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