India's services sector grew sharply in February, as shown by the HSBC PMI survey that was released on Wednesday. The activity index rose to 59 from 56.5 in January, a strong expansion.
This growth momentum also led to a significant increase in employment, with the creation of jobs at one of the highest levels since December 2005 when data collection commenced.
"To provide room for growth for new businesses and ease capacity constraints, Indian services businesses continued to launch recruitment campaigns. Employment grew sharply, and at one of the quickest rates since data collection started in December 2005," the survey reported.
One of the main drivers of this growth was strong world demand, which accelerated at its quickest rate in six months, as indicated by the new export business index. "Global demand, which expanded at its quickest rate in six months as per the new export business index, was a significant contributor to the growth of India's services sector," said Pranjul Bhandari, chief India economist, HSBC.
The rise in international orders further strengthened this trend, with Indian service providers benefiting from increased demand across Africa, Asia, Europe, the Americas, and the Middle East. The survey reported that external sales recorded their fastest expansion in six months.
While companies in the industry used high demand to hike prices, consumer services came under most price pressure. "Among the four broad categories of the service economy covered in the PMI survey, the greatest cost pressures were in the Consumer Services segment. The biggest surge in selling fees was indicated by Transport, Information & Communication companies," the survey said.
The results concur with the government's GDP data published last week, which emphasized the services sector as the driver of economic recovery in the third quarter. Expansion recovered to 6.2% from dipping to 5.6% in the last quarter. The HSBC India Composite Output Index also mirrored this trend, advancing from 57.7 to 58.8 during the same period, indicating a strong expansion.
"Employment generation and inflation of charges continued to be robust in February. In the future, business optimism is generally positive," Bhandari further added. The sector's outlook is also optimistic, driven by better advertising campaigns, increased customer interaction, efficiency in operations, and consistent demand. A quarter of the survey respondents anticipated growth in the next year, and pessimism was confined to fewer than 2% of respondents.
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