Booming services fire up India business growth in May despite rising inflation, PMI shows

India's private sector activity accelerated at its fastest pace in over a year in May, driven by robust expansion in services even as price pressures intensified, a survey showed on Wednesday. HSBC's Flash India Composite Purchasing Managers' Index (PMI), compiled by S&P Global, rose to 61.2 this month from April's 59.7 - the sharpest rate of increase since April 2024 and confounding a Reuters poll median forecast for a dip to 59.5. The 50-mark separates contraction from expansion, and the latest reading showed sustained private sector growth for nearly four years. "India's flash PMI indicate another month of strong economic performance," said Pranjul Bhandari, chief India economist at HSBC. Services was the primary growth engine with the industry's PMI jumping to a 14-month high of 61.2 from 58.7. The manufacturing output index held mostly steady at 58.3, maintaining growth momentum. Services new business inflows surged in both domestic and overseas markets suggesting robust demand. The overall private sector registered the fastest rate of increase in new orders since April last year with exports at a one-year high. Businesses remained optimistic on the outlook for the coming year, anticipating healthy demand to support future sales and output. That allowed companies to recruit additional staff to manage workloads. Employment generation continued its upward trend, reaching a record high since the survey began in December 2005. "Notably, there is a firm pick-up in the employment, especially in the service sector, suggesting healthy job creation accompanies the expansion of both India's manufacturing and service sectors," Bhandari said. However, the survey also highlighted escalating inflationary pressures. Input cost inflation across the private sector hit a five-month high, while prices charged for Indian goods and services rose at the fastest pace since November. Manufacturing output prices, in particular, increased at the steepest since late-2013, with firms saying they were able to pass on rising expenses to clients due to strong demand. Those price pressures are likely to feed into India's retail inflation in coming months posing upside risks after April data showed price rises had cooled to a near six-year low, below the Reserve Bank of India's 4% target for a third straight month. The central bank is widely expected to cut rates for a third consecutive meeting in June, to 5.75%, supported by low inflation.