India's services sector saw strong growth in February, as domestic and foreign demand picked up, resulting in a sharp increase in output and a sharp rise in employment, a monthly survey said on Wednesday.
The HSBC India Services PMI Business Activity Index rose to 59.0 in February, bouncing back sharply from January's 26-month low of 56.5, indicating a firm rate of expansion.
In PMI language, any reading above 50 shows expansion, while below 50 signifies contraction.
"India's business activity in the services sector improved sharply, helped by the highest growth in demand globally in six months, as indicated by the new export business index," HSBC Chief India Economist Pranjul Bhandari said.
Growth Drivers and Hiring Spree
The survey pointed to higher productivity, robust demand fundamentals, and a greater influx of new business as major drivers of the sector's growth. International orders were also a major factor, with service providers experiencing more robust demand from customers in Africa, Asia, Europe, the Americas, and the Middle East.
In order to match the rise in business and alleviate capacity tensions, Indian services companies increased hiring. The rate of employment surged sharply, which was one of the most dramatic rises since record-keeping commenced in December 2005.
"Employment generation and price inflation continued to be firm in February. Business sentiment remains overwhelmingly positive, albeit marginally fell to a near-eight-month low since August 2024," Bhandari said.
Optimism in the industry was driven by advertising activities, enhanced customer relationships, gains in efficiency, and stable conditions of demand. Almost a quarter of the respondents to the survey anticipated further expansion in the next year, with less than 2% having concerns.
Overall Economic Outlook
The HSBC India Composite Output Index, which combines manufacturing and services PMI data, increased from 57.7 to 58.8, indicating a robust expansion.
On a macroeconomic level, India's GDP expanded by 6.2% in the December quarter, recovering from a seven-quarter low, but the growth was lower than the corresponding period last year. The government estimates GDP growth at 6.5% for the entire fiscal year 2024-25, higher than its initial estimate of 6.4%. Still, this is lower than the revised 9.2% growth in 2023-24.
In spite of this moderation, India is likely to continue being the world's fastest-growing large economy.
Read also| India's Manufacturing Growth Slows but Remains Resilient in February: Report
