Service PMI Hits a Four-Month High: A Glimpse into India's Economic Resilience

Robust Services Sector Drives Growth in December

India's services sector witnessed a remarkable upswing in December, as business activity surged to a four-month high. This growth was propelled by buoyant demand, even as manufacturing exhibited signs of slowing. According to the HSBC India Services Purchasing Managers’ Index (PMI), compiled by S&P Global, the index climbed to 59.3 in December, up from 58.4 in November, indicating robust expansion. Notably, the PMI has consistently remained above the critical 50-point threshold, marking 41 consecutive months of expansion.

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Key Drivers Behind the Momentum

The surge in December was attributed to strong demand, as evidenced by a significant rise in new orders. The survey highlighted that:

• New orders grew at the fastest pace since August 2024.
• Firms responded to increased demand by hiring additional workers.
• Softer cost inflation, despite higher outlays on food, labor, and materials, further supported growth.
• Ines Lam, an economist at HSBC, remarked, “India’s services companies expressed strong optimism in December, underpinned by forward-looking indicators such as new business and future activity, suggesting sustained growth momentum.”

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Services: A Cornerstone of India's Economy

The services sector, which contributes more than half of India’s GDP, continues to be a linchpin for economic resilience. In FY 2023-24, India’s economy grew by an impressive 8.2%, surpassing the Reserve Bank of India’s forecast of 7%. However, recent quarters have seen a deceleration:

• Q1 FY 2024-25 GDP growth slowed to 6.7%, marking a five-quarter low.
• Q2 FY 2024-25 growth further dipped to 5.4%, the slowest in nearly two years, driven by weaker manufacturing and urban consumption.

Despite these challenges, the services sector remains a bright spot, with strong contributions from exports and rural consumption projected to sustain growth at 6.5%-6.6% in FY 2024-25.

Manufacturing Slows, But Composite Growth Holds Firm

In contrast to services, India's manufacturing sector showed signs of cooling. The HSBC India Manufacturing PMI fell to 56.4 in December, marking a 12-month low. Slower factory orders and production were key contributors to the decline.Nonetheless, the HSBC India Composite Output Index, which combines services and manufacturing data, rose to 59.2 in December, reflecting faster aggregate output growth driven by the robust services sector.

Optimism for 2025

The easing of input price inflation and strong demand in the services sector bode well for India's economic outlook. Analysts believe the services sector’s sustained momentum will play a crucial role in counterbalancing the challenges faced by manufacturing.

 Also Read: India's GDP Growth: 6.6% Forecast for FY25 Amid Resilience and Revival