India's Service Sector Growth Hits 4.5-Year Low at 53.3 in July

India's service economy growth fell to a 4.5-year low in July, with the HSBC Services PMI at 53.3. The slowdown, the weakest in 53 months, is attributed to softer demand, competition, and a drop in customer enquiries, despite a solid export rate.

India's service economy fell to 53.3 in July from 57.4 in June, marking the weakest growth rate in close to four-and-a-half years. According to the HSBC India Services PMI index, the country's service economy continued to expand, but business activity rose at the softest pace in 53 months amid softer demand, competitive pressures, and a drop in customer enquiries.

New business inflows grew at the slowest pace since February 2022. Panellists noted that growth was constrained by fierce competition, fading demand, softer market conditions, and order postponements. Out of the four service sub-sectors monitored, only Finance & Insurance recorded faster rates of expansion in output and sales.

Expert Commentary on Survey Findings

Commenting on the survey findings, Pranjul Bhandari, Chief India Economist at HSBC, said, "India's services sector continued to expand in July, albeit at a slightly slower pace, as new business growth eased in both domestic and export markets after several months of strong performance."

Foreign demand offered some support to the sector, as new export business grew at a "solid rate" that exceeded total sales growth. Service providers cited gains from clients in the United Arab Emirates, the United Kingdom, and the United States.

Employment and Cost Pressures

On the employment front, job creation improved moderately after sinking to a six-month low in June. About six per cent of surveyed firms added staff, while 92 per cent reported unchanged payroll numbers. "Hiring showed a moderate rebound, while profit margins improved as input costs softened and firms increased their selling prices," Bhandari added.

Input cost inflation eased to its lowest rate since January, remaining below its long-run average despite higher costs for fuel, labor, materials, technology, and transportation. However, selling charges across the service economy were raised at the quickest pace since April.

Overall Private Sector Performance

Meanwhile, limited bookings and weak sales led to a reduction in outstanding business, with the pace of decline in backlogs reaching its fastest level in close to five years. Across the broader private sector, the HSBC India Composite PMI Output Index dropped from 57.1 in June to 54.3 in July, indicating the weakest overall expansion in 53 months as manufacturing output outperformed the slowing services sector.

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