India's crucial services sector showed a robust rebound in November, according to the latest private survey data released on Wednesday. The HSBC India Services Purchasing Managers' Index (PMI), compiled by S&P Global, climbed to 59.8 in November from 58.9 in October. This marks a significant pickup in growth momentum after the index expanded at its slowest pace since May in the previous month.
Domestic Demand Fuels Expansion Amid Subdued Inflation
The survey, which draws on responses from roughly 400 companies across diverse sectors, pointed to a strong increase in new business intakes. This surge in domestic demand was a primary driver for the heightened business activity. Notably, this growth occurred in an environment of significantly subdued price pressures. Input cost inflation retreated to its lowest level in nearly five and a half years, leading to only negligible increases in selling prices for services.
This combination of firm demand and minimal price hikes supported positive trends within the sector. Pranjul Bhandari, chief India economist at HSBC, noted, "India’s services PMI business activity index rose... driven by robust new business intakes that fuelled output growth." However, she highlighted a contrasting trend in international sales, which expanded at an eight-month low due to fierce competition overseas.
Optimism and Employment Trends
Despite the monthly improvement, firms' year-ahead optimism slightly faded during November. The survey cited concerns around heightened competition and potential disruptions from state assembly elections. Nevertheless, business sentiment remained positive overall. Companies continue to foresee output growth, linking their optimism to favourable demand conditions, plans for greater social media presence, marketing initiatives, and a commitment to keeping price increases minimal.
On the employment front, the survey indicated that job creation in the services economy continued in November, but the rate of expansion remained moderate and similar to the previous two months. One factor cited for this modest employment growth was the absence of pressure on firms' operating capacities. Following a marginal decline in October, volumes of outstanding business were broadly stable midway through the third fiscal quarter.
External Headwinds and the Composite Picture
Beyond the strong domestic performance, external risks continue to cloud the outlook for India's services industry. Policies from the United States, including stricter H-1B visa rules, higher application fees, and discussions on digital service tariffs, pose fresh challenges. Tighter US spending and rising global protectionism have also slowed deal closures and squeezed margins for Indian technology firms, a key segment of the services export sector.
Rishi Shah, partner and economic advisory services leader at Grant Thornton Bharat, provided a nuanced view: "The latest services-PMI points to a broadly positive picture... Nonetheless, intense competition appears to be constraining pricing power." He added that the forward trajectory will crucially depend on global growth and how external demand shapes momentum in the coming months.
The overall economic picture shows a divergence. While services accelerated, India's manufacturing sector growth softened to a five-month low in November, with its PMI falling to 56.6. Consequently, the composite PMI output index, which combines manufacturing and services, softened slightly to 59.7 in November from 60.5 in October. This resilience in the services sector comes after India's GDP growth surprised on the upside, rising to an 8.2% six-quarter high in the September quarter.
