India’s service sector growth at 10-month low in September

New Delhi: India’s services sector grew at its slowest pace in 10 months in September due to cost pressure and as domestic firms saw a subdued rise in international orders, according to a business survey released on Friday.

The HSBC India Services Purchasing Managers’ Index (PMI), compiled by S&P Global, fell to 57.7 in September from 60.9 in August, 60.3 in July, and 60.5 in June.

The PMI reading has remained above the 50-mark, which separates expansion from contraction, for 35 consecutive months. It had reached a high of 61.8 in January.

Despite slow growth in September, major services firms saw solid job creation, strengthening of business confidence and the slowest uptick in selling prices in over two-and-a-half years during September, the survey said.

India’s manufacturing activity eased to an eight-month low in September as the expansion rate in factory production and sales receded, while international orders rose at the slowest pace in a year and a half.

The HSBC final India Manufacturing Purchasing Managers Index (PMI), compiled by S&P Global, stood at 56.5 in September, down from 57.5 in August, 58.1 in July, 58.3 in June, 57.5 in May, and 58.8 in April.

The September reading was slightly lower than the flash projection of 58.9 released last month.

Falling from 60.9 in August to 57.7, the headline figure signalled a softer albeit still historically robust rate of expansion, the survey said.

"Growth was reportedly curbed by fierce competition, cost pressures and changes in consumer preference (i.e., switch to online services)," it said.

"Similarly, new business intakes expanded sharply at the end of the second fiscal quarter, but the pace of growth retreated to a ten-month low," it added.

The index is based on questionnaire responses from around 400 service sector companies.

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Sustained growth momentum

India’s services sector, one of the world’s fastest-growing, accounts for more than half of the country’s gross domestic product (GDP).

India’s GDP expanded at a blistering 8.2% in 2023-24, ably supported by the January-March quarter growth of 7.8%, better than the Reserve Bank of India’s revised GDP growth forecast of 7% for the fiscal year.

However, India’s economy grew 6.7% in the April-June quarter, marking the slowest pace in five quarters, after a 7.8% expansion in the previous quarter, according to data released by the statistics ministry.

"India’s services PMI data showed that the services sector expanded at a slower pace in September. The headline Business Activity Index fell below 60 for the first time in 2024, but we note that at 57.7, it was still much above the long-term average," said Pranjul Bhandari, chief India economist at HSBC.

"The new business index followed a similar trajectory as the headline figure, indicating the possibility of softer output growth in the coming months. Services companies’ margins have likely been squeezed further, as prices charged rose at a slower pace when input cost inflation intensified," Bhandari said, adding that a long period of robust new business growth has led to strong labour demand.

Composite Output Index

The HSBC India Composite Output Index fell to 58.3 in September, from 60.7 in August.

That said, this index has remained above the critical 50 threshold for 37 months, indicating sustained strong growth momentum.

"Behind the slowdown in the growth of private sector output was a softer, albeit still robust, expansion in new business. The rate of increase eased to a ten-month low. Notably, international sales growth receded to its weakest in 2024 so far and was considerably below that seen for total new work," the survey said.

"Despite the aforementioned loss of growth momentum, private sector employment rose markedly and business confidence strengthened since August. With regards to prices, the latest results showed a quicker increase in aggregate input costs, parallel to a softer uptick in prices charged for the provision of Indian goods and services," it added.