India’s Services Sector: Growth Holds Firm Amid Cost Pressures

India’s services sector, a critical driver of the economy, demonstrated resilience in November despite inflationary challenges. The HSBC India Services Purchasing Managers’ Index (PMI), compiled by S&P Global, slipped marginally to 58.4 from October’s 58.5 but remained comfortably above the 50-point threshold for over 40 months, signaling continued expansion.

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Robust Yet Moderating Growth

While total sales rose at a rate four points above the long-term average, new orders and output growth slowed. Export orders from Asia, Europe, Latin America, and the US grew at their fastest pace in three months, though they remained below mid-year levels.

Record Job Creation Amid Confidence

Employment surged, registering the fastest growth since the survey began in 2005, fueled by robust business confidence, growing new orders, and international demand. However, this growth came amid escalating price pressures.

Inflationary Challenges

Input and output prices climbed at their steepest rates in 15 months and nearly 12 years, respectively, driven by high food and labor costs. Service providers faced sharper cost pressures compared to manufacturers, leading to higher selling prices.

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Economic Context

India’s economy expanded 8.2% in FY24, surpassing the Reserve Bank’s 7% projection. However, GDP growth slowed to 6.7% in Q1 FY25 and further to 5.4% in Q2 FY25 due to weakening manufacturing and urban consumption.

Manufacturing and Composite Output Trends

The HSBC India Manufacturing PMI eased to 56.5 in November, marking an 11-month low. Consequently, the Composite Output Index, combining services and manufacturing, fell to 58.6 from October’s 59.1, reflecting broad economic moderation.

Outlook

The services sector continues to be a cornerstone of India’s economy, contributing over 50% to GDP. Policymakers must address inflationary pressures to sustain growth while leveraging the sector’s strong demand and historic employment gains. India’s services sector stands resilient, but balancing growth with inflation management will be key to maintaining momentum in the months ahead.

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