Business activity in India experienced robust expansion in May, driven by a strong performance in the dominant services industry, according to a recent survey. The survey also highlighted exports rising at a record pace and the sharpest rate of job additions in nearly 18 years.
The Composite Purchasing Managers' Index (PMI) for India, compiled by S&P Global, rose slightly to 61.7 in May from April's final reading of 61.5. This marks the 34th consecutive month the index has remained above the 50-level, indicating growth.
"The composite PMI ticked up further in May, recording the third strongest reading in close to 14 years, supported by a sharp acceleration in the service sector," said a chief India economist.
The flash services PMI index climbed to a four-month high of 61.4 in May from 60.8 in April, while the preliminary manufacturing PMI showed strong growth, albeit slightly weaker than last month, dipping to 58.4 from 58.8.
Robust demand was bolstered by new business in the services industry, which grew at the fastest pace since January, alongside rising manufacturing output and new orders. Strong international demand led to overall exports expanding at the fastest rate since the series began in September 2014, marking the second time this year that export growth has set a new high.
This growth boosted business confidence for the coming 12 months, particularly in the services sector, where optimism reached its highest level since May 2013. Optimism among manufacturers was the strongest in over nine years.
Job creation across the private sector improved, with employment rising at the fastest pace since September 2006. The services sector added jobs at the quickest rate in 21 months, which is positive news for the current administration amidst a national election.
A recent Reuters poll identified unemployment as the biggest challenge for the new government. Meanwhile, input prices at a composite level rose to a nine-month high, with companies raising selling prices at a faster pace in May compared to April. However, not all of the increase in input costs was passed on to clients this month.
"Higher input costs in both sectors led to further margin squeezes, particularly for service providers," noted the economist.
High costs could slow the cooling of retail inflation, putting pressure on the Reserve Bank of India to maintain elevated interest rates at its upcoming June meeting before potentially lowering them next quarter, according to an earlier Reuters poll.
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