India's Services Sector Growth Moderates in February Amid Inflationary Pressures
India's services sector experienced a slight deceleration in growth during February, as new business expansion slowed to its lowest level in 13 months, reflecting softer demand conditions and a notable rise in inflation, according to the latest monthly survey released by HSBC. The seasonally adjusted HSBC India Services PMI Business Activity Index edged down to 58.1 in February from 58.5 in January. In PMI terminology, readings above 50 denote expansion, while those below 50 indicate contraction.
Robust Expansion Continues Despite Challenges
"India's Services PMI registered 58.1 in February, largely unchanged from January's 58.5, signalling another month of robust expansion in the sector," the report stated. Pranjul Bhandari, Chief India Economist at HSBC, elaborated, "While new order growth slowed to a 13-month low amid rising competition, service providers saw a notable pick-up in international sales and responded with increased hiring to meet operational needs."
According to survey respondents, some firms benefited from stronger client enquiries and targeted marketing efforts, which supported sales. However, others reported that an increasingly competitive landscape limited the pace of growth, highlighting the mixed dynamics within the sector.
International Demand Strengthens
External demand emerged as a bright spot during the month. Services companies recorded improved business from several overseas markets, including Canada, Germany, mainland China, Singapore, the UAE, the UK, and the US. Overall, international sales rose at the quickest pace since last August, indicating resilience in global market engagement.
Cost Pressures Intensify
Cost pressures intensified for service providers in February. Operating expenses increased at the sharpest rate in two-and-a-half years, prompting firms to raise their selling prices at the fastest pace in six months. Bhandari noted, "Input and output price inflation accelerated, with firms passing higher expenses -- particularly for food and labour -- on to customers, yet business confidence climbed to its highest level in a year as companies looked to broaden their market presence."
Private Sector Activity Strengthens Overall
At the combined level, private sector activity strengthened further. Total business output across manufacturing and services expanded at the fastest rate in three months, supported by improved demand and higher new business inflows. The HSBC India Composite PMI Output Index climbed to 58.9 in February from 58.4 in January.
"Overall, the composite PMI rose to 58.9, reflecting the fastest pace of private sector activity growth in three months, buoyed by strong momentum in manufacturing," Bhandari said. Composite PMI figures represent weighted averages of manufacturing and services indicators, with the weights reflecting their respective shares in official GDP data.
Hiring and Inflation Trends
While the pace of new order growth at the composite level was broadly similar to that seen around the start of the year, hiring activity strengthened to its highest level since last October. Inflationary trends were also evident in the broader private sector, with both input costs and output charges rising at quicker rates. These increases reached nine-month and six-month highs, respectively, underscoring persistent inflationary pressures.
