India's service sector had a robust start to the first quarter of the financial year 2024-25, as indicated by the HSBC PMI data compiled by S&P Global. New business growth and output remained strong, reaching levels among the highest in 14 years.

In addition to strong domestic demand, companies reported new business gains from various parts of the world, contributing to the second-fastest growth in international sales. The HSBC India Services PMI released on Monday highlighted this trend.

However, wage pressures and increased food prices resulted in higher cost burdens, prompting firms to pass on some of these costs to customers.

According to the HSBC India Services PMI Business Activity Index compiled by S&P Global, the index dipped from 61.2 in March to 60.8 in April. Despite this, total new orders continued to outpace exports, with overall sales remaining robust, well above historical averages and one of the strongest performances in 14 years.

Pranjul Bhandari, Chief India Economist at HSBC, noted, "India's service activity expanded at a slightly slower pace in April, driven by a further increase in new orders, particularly from domestic sources. Although export orders remained strong, they moderated slightly compared to March figures. As firms responded to growing orders, they expanded their workforce, albeit at a slower rate. Input costs continued to rise, albeit at a slower pace than in March, leading to squeezed margins for service providers."

Bhandari also highlighted a marked improvement in overall confidence among service providers for the year ahead, driven by resilient demand conditions. "Aggregate output across both manufacturing and service sectors increased significantly in April, indicating sustained health in these areas, albeit at a slightly slower pace."

India's service exports saw a 4.4% increase to USD 339.62 billion in the recently concluded financial year 2023-24. According to a report by Goldman Sachs, service exports are expected to more than double by 2030, reaching USD 800 billion.

Regarding digitally delivered services, their prominence has grown over the past decade. These services, delivered remotely over computer networks, have positioned India as the third-largest services exporter in 2023, following Ireland and Singapore, in terms of Compound Annual Growth Rate (CAGR).

Among business services exports, consultancy, management, and public relations services expanded by 29% between 2020-21 and 2022-23 compared to 2017-18 and 2019-20. Engineering services grew by 8.4%, advertising and trade fair services by 5.1%, and others by 4.8%. Research and development services saw a 3.6% increase during the same period.