India's Services Sector Growth Slows

By Shaloo Shrivastava
BENGALURU (Reuters) – Growth in India's dominant services sector remained robust but slackened to a 10-month low in September as demand slowed, according to a business survey released on Friday.

The HSBC final India Services purchasing managers' index, compiled by S&P Global, decreased to 57.7 in September from a five-month high of 60.9 in August, falling below a preliminary estimate of 58.9.

Pranjul Bhandari, chief India economist at HSBC, noted that although the headline business activity index dropped below 60 for the first time in 2024, it remained significantly above the long-term average at 57.7. The index has stayed above the 50-mark separating expansion from contraction for over three years.

The new business sub-index, an indicator of overall demand, fell to its lowest level since November yet remained above its historical average. Meanwhile, international demand rose at its slowest pace this year.

Despite the decline, the business outlook for the upcoming year improved, leading firms to continue hiring. Job creation has now extended for more than two years, with hiring increasing slightly from August.

On the cost front, inflation accelerated from August, as prices for electricity, food, and other materials increased. Nevertheless, companies passed on these extra costs to clients at the slowest pace since February 2022, indicating that margins for services companies might be further squeezed.

Indian inflation fell below the Reserve Bank of India’s (RBI) 4% medium-term target in July and August, with predictions suggesting it will average 4.2% to 4.6% in each quarter until at least July 2026, according to a recent Reuters poll.

The RBI is expected to maintain its key repo rate at 6.50% on Wednesday and could reduce it by 25 basis points in December.

A manufacturing PMI released on Tuesday showed a dip to an eight-month low of 56.5 in August. Together with the decline in services activity, this resulted in the overall Composite PMI being the weakest since November last year, falling to 58.3 in September from 60.7.