India’s service economy rose at softest pace in 14 months in March: PMI

India's service economy, which is a significant driver of the country's overall economic growth, experienced a slowdown in March, registering the weakest growth momentum in 14 months, according to the latest HSBC India Services PMI Business Activity Index. The index fell from 58.1 in February to 57.5 in March, reflecting a slowdown in new business intakes. This development comes as a concern for policymakers and economists, who are already grappling with the broader economic slowdown.

The Purchasing Managers' Index (PMI) is a widely used indicator of the economic health of the services sector. A score above 50 indicates expansion, while a score below 50 signifies contraction. In March, the index remained above 50, indicating that the sector was still in expansion. However, the growth momentum eased for the second consecutive month, highlighting the challenges faced by service providers.

Despite the slowdown, demand for services remained resilient, driven by new export orders that rose to the greatest extent since mid-2024. Service providers' expectations for future activity remained positive, as noted by Pranjul Bhandari, Chief India Economist at HSBC. The increase in new export orders was attributed to gains from various regions, including Africa, Asia, Australia, Europe, the Americas, and the Middle East.

However, the services sector faced significant challenges on the price front. Selling charges inflation accelerated to a seven-month high, driven by a steep increase in input costs since June 2022. Panel members reported rising outlays on items such as chicken, cooking oil, eggs, electricity, fish, fruits, fuel, labour, meat, and vegetables. This inflationary trend is expected to impact the overall cost structure of service providers, potentially leading to higher prices for consumers.

The survey also highlighted that input cost inflation accelerated to its fastest pace since 2022, indicating that higher fuel, transport, and logistics costs are feeding into the services sector. Out of the four broad areas of the service economy monitored by the survey—Consumer Services, Transportation, Information Technology, and Communication, Services, and Financial and Insurance Services—the quickest increases in input costs and output charges were seen in Consumer Services and Finance & Insurance, respectively.

On the employment front, the latest results showed a third consecutive monthly increase. The pace of job creation was solid, suggesting that despite the slowdown in growth momentum, the services sector remains a key contributor to employment generation in the country.

The slowdown in the services sector growth momentum in March is a cause for concern, as it mirrors the broader economic slowdown. While demand for services remains resilient, the challenges posed by inflation and rising input costs could potentially impact the sector's performance in the coming months. Policymakers and economists will be closely monitoring the situation to identify potential interventions and strategies to support the services sector and ensure sustained economic growth.