India's Services Sector Growth Slows Slightly in November

India's services sector growth experienced a minor decline in November, as revealed by the HSBC India Services Purchasing Managers’ Index (PMI).

• The PMI fell to 58.4 in November, down from 58.5 in October but above 57.7 in September.
• The index has stayed above the 50-point threshold, indicating expansion, for over 40 consecutive months.
• The sector saw its peak PMI at 60.9 in August, with subsequent months registering lower figures.

Key Drivers of Growth

Improved Sales: Companies reported ongoing sales improvements, which led to higher capacity utilization and an uptick in job creation.

International Demand: New export orders increased at the fastest rate in three months, with demand from Asia, Europe, Latin America, and the US driving growth.

Job Market: Employment in the services sector surged at its fastest pace since the survey began in 2005, reflecting strong business confidence.

Rising Price Pressures

The sector faced intensified price pressures:

Input Costs: increased at the highest rate in 15 months.

Selling Prices: Rose at the fastest pace in nearly 12 years.

The survey noted that total sales grew at a slower pace compared to October but remained robust, with the index staying well above its long-run average.

India's Economic Growth Context

Contribution of Services Sector

The services sector accounts for over 50% of India's GDP, making it a cornerstone of the economy.

India's economy grew 8.2% in FY24, exceeding the Reserve Bank of India’s 7% projection. However, growth moderated to 6.7% in Q1 FY25 and further slowed to 5.4% in Q2 FY25 due to weaker manufacturing and urban consumption.

Manufacturing Growth Slows in November

India's manufacturing growth also eased during November.

• The HSBC India Manufacturing PMI dropped to 56.5, the lowest in 11 months, from 57.5 in October.
• The slowdown was attributed to rising price pressures and weaker domestic demand.

Composite Output Index Overview

The HSBC India Composite Output Index, combining services and manufacturing output, declined to 58.6 in November from 59.1 in October.

Growth Trend: Manufacturing slowed more than services but still grew at a faster rate.

Cost Pressures: Service providers faced steeper cost increases compared to manufacturers, leading to sharper rises in selling prices.

Expert Insights

Pranjul Bhandari, Chief India Economist at HSBC, commented:

• "The services sector’s hiring growth hit record levels in November, driven by strong business confidence and international demand."
• "However, high food and labor costs pushed input and output prices to their fastest rates in 15 months and 12 years, respectively."

Both sectors continue to grow, but rising costs and easing demand present challenges to maintaining the robust momentum.

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