Economy 4 min read By Alice Ashford
India’s services growth picks up in August but stays near four-year low, PMI shows
India's services sector activity accelerated in August but remained close to a four-year low, according to the latest HSBC PMI survey, signalling subdued momentum in the economy's dominant services industry.
India’s services sector expanded at a slightly faster pace in August, although growth remained close to its weakest level in four years, according to a business survey released on Wednesday. The HSBC India Services Purchasing Managers’ Index, compiled by S&P Global, rose to 60.9 in August from 60.3 in July, signalling a modest improvement in business activity across the country’s dominant services industry.
The reading, which remains well above the 50-mark that separates expansion from contraction, suggests the sector is still growing solidly despite facing headwinds from elevated price pressures and softening demand. However, the latest figure stays near the four-year low recorded in July, when the index slipped to its weakest point since the early months of the post-pandemic recovery, underscoring concerns about the durability of India’s economic momentum.
Survey participants reported that new business inflows increased during the month, supported by resilient domestic demand and favourable market conditions. Export orders also contributed to the uptick, with services firms noting stronger demand from international clients, particularly from regions including Asia and the Middle East. Despite the improvement, the pace of expansion in new work remained subdued compared with the averages seen over the past year.
Employment in the services sector continued to rise in August, extending a trend of job creation that has now lasted for several consecutive months. Firms added staff to accommodate higher workloads and to support future growth plans, although the rate of hiring was described as modest. The sustained increase in payrolls provides some reassurance for policymakers monitoring labour market conditions in Asia’s third-largest economy.
Price pressures, however, remained a key concern for businesses. Input costs rose at a sharper pace during the month, driven by higher expenses for fuel, food, and staff salaries. In response, services providers passed on some of these additional burdens to customers by raising output charges. The survey noted that selling price inflation accelerated, a development that could complicate the Reserve Bank of India’s efforts to steer inflation towards its medium-term target while supporting economic growth.
The services PMI data follows a separate survey showing that India’s manufacturing activity also expanded in August, albeit at a softer pace. Taken together, the two reports point to an economy that continues to grow, but at a more moderate rate than in previous quarters. Economists have cautioned that persistently high inflation and the cumulative effect of tighter monetary policy could weigh on consumption and investment in the months ahead.
India’s services sector accounts for more than half of the country’s gross domestic product and is a critical driver of employment and urban consumption. The sector’s resilience has helped buffer the economy against global slowdowns, but recent survey readings suggest that the pace of recovery is losing some steam. Analysts will be watching upcoming data releases closely for signs of whether the slowdown deepens or stabilises in the final quarter of the year.
