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Indian service providers saw a notable increase in business activity during July, driven by robust demand and significant investments in technology and online offerings, according to the latest HSBC India Services Business Activity Index.
The seasonally adjusted index, compiled by S&P Global, registered at 60.3 in July, slightly down from 60.5 in June.
Sustained Growth Despite Slight Slowdown
While there was a marginal deceleration in growth, business activity maintained its position above the neutral mark of 50.0 for the thirty-sixth consecutive month. The overall rate of charge inflation soared to a seven-year high, influenced by stronger cost pressures and positive demand trends.
“Survey respondents mostly cited investment in technology, online offerings, new business gains, and rosy demand as the main drivers of growth,” the report highlighted.
Sharp Increase in New Orders
The HSBC report noted a historically sharp expansion in new orders. Services firms remained optimistic about future growth, with approximately 30 percent of the survey panel predicting increased output volumes over the next 12 months, while only 2 percent anticipated a decline. Enhanced confidence in demand and sales, coupled with improved customer engagement and new inquiries, bolstered overall sentiment.
“Service sector activity rose at a slightly slower pace in July, with new business increasing further, primarily driven by domestic demand. Looking ahead, services firms remained optimistic about the outlook for the year ahead,” stated Pranjul Bhandari, chief India economist at HSBC.
International Sales and Employment Levels Rise
International sales experienced the third-fastest growth in nearly a decade, with rising export orders from countries such as Austria, Brazil, China, Japan, Singapore, the Netherlands, and the US.
Employment levels surged at one of the strongest rates in almost two years, as firms hired both full- and part-time staff to meet the increased demand. Despite strong job creation, backlog volumes continued to rise moderately, reflecting sustained demand buoyancy.
Rising Costs and Inflation
Higher wages and material costs contributed to an overall increase in business expenses, with the rate of cost inflation accelerating since June. Firms pointed to increased costs for labor and materials, particularly noting higher outlays on eggs, meat, and vegetables. Despite the solid and faster rate of cost inflation, it remained below its long-run average.
