India’s Services Sector Growth Moderates in February 2024

India’s services sector growth experienced a modest slowdown in February 2024, according to a recent survey. The decline was marked by a reduction in new order growth, which fell to a 13-month low due to decreasing demand and an uptick in inflation. The seasonally adjusted HSBC India Services PMI Business Activity Index decreased to 58.1 in February, down from 58.5 in January. A PMI score above 50 indicates expansion, while a score below that threshold signifies contraction.

The February index reflects a continuation of robust expansion within India’s services sector, despite the slight dip. Pranjul Bhandari, Chief India Economist at HSBC, commented, “While new order growth slowed to a 13-month low amid rising competition, service providers saw a notable pick-up in international sales and responded with increased hiring to meet operational needs.”

Key Drivers of Growth and Challenges

The survey revealed that while some companies experienced a downturn in growth due to heightened competition, others benefited from increased client inquiries and marketing efforts, which bolstered sales. Notably, international sales emerged as a strong area of performance, with services firms reporting gains from various global markets, including Canada, Germany, mainland China, Singapore, the UAE, the UK, and the US. On average, international sales expanded at the fastest rate since August 2023.

The survey findings also indicated a significant rise in operating expenses for Indian services firms, marking the sharpest increase in two-and-a-half years. This surge in costs is likely attributed to various factors, including inflationary pressures and rising input prices, which are impacting profitability across the sector.

Outlook for the Services Sector

As the services sector navigates these challenges, the overall sentiment remains cautiously optimistic. The continued growth in international sales suggests resilience amidst local market pressures. Service providers are expected to adjust their strategies to maintain competitiveness while addressing the rising costs associated with operations.

The February report underscores the dynamic nature of India’s services sector, which is a critical component of the nation’s economy. The ability to adapt to changing market conditions will be essential for sustaining growth in the months to come.

In summary, while the services sector has shown signs of moderation, ongoing international demand and strategic hiring practices offer a pathway to continued expansion.