India's Business Activity Hits 13-Month High in May as Services Surge, Jobs See Record Boost

India's private sector experienced a strong upswing in May, supported by an acceleration in the service economy, according to the latest HSBC Flash India Purchasing Managers' Index (PMI), compiled by S&P Global, released on Thursday. The Composite Output Index climbed to 61.2, up from April’s 59.7, marking the fastest expansion in over a year.

"There was a mild loss of growth momentum in the manufacturing industry but service providers reported the fastest rise in output in 14 months," the report said. Despite a slight cooling in manufacturing momentum, the sector remained robust, with the PMI rising marginally to 58.3 from 58.2.

"India’s flash PMI indicates another month of strong economic performance. Growth in production and new orders among manufacturing firms remains robust, despite a marginal cooling from the rates of increase observed in April," notes Pranjul Bhandari, Chief India Economist at HSBC.

She also points out that there is a firm pick-up in employment, especially in the service sector, suggesting healthy job creation accompanies the expansion of both India’s manufacturing and service sectors.

While goods producers indicated the slowest increase in output for three months during May, service providers reported the fastest rise since March 2024, it said.

Employment growth in May reached a record high since the series began in December 2005, as firms hired both permanent and temporary staff to meet rising demand. New business inflows surged, helped by stronger domestic and international demand. Export orders, particularly in services, grew at their quickest pace in nearly a year, helping offset a slowdown in manufacturing exports.

However, the report also highlighted mounting price pressure. Input cost inflation reached a five-month high across the private sector, with businesses citing rising raw material prices and staffing expenses. This led to higher selling prices with the aggregate rate of inflation at a six-month high, particularly in manufacturing, where the rise was the steepest in over 11 and a half years.

Despite these concerns, business confidence rebounded in May after falling to an eight-month low in April. Most firms expect strong demand and effective marketing to support growth over the next year, although sentiment was notably stronger among service providers than manufacturers.