Reserve Bank Governor Sanjay Malhotra.
| Photo Credit: RBI

India’s services sector lost growth momentum in January 2025, although the PMI remained well above the 50-break-even level. File photo
| Photo Credit: The Hindu

India’s services sector activity expanded at the slowest pace in over two years in January amid softer increases in sales and output, a monthly survey said on Wednesday (February 5, 2025).

The seasonally adjusted HSBC India Services PMI Business Activity Index fell from 59.3 in December to 56.5 in January — its lowest level since November.

In the Purchasing Managers’ Index (PMI) parlance, a print above 50 means expansion, while a score below 50 denotes contraction.

Also read: Economic Survey 2024-25

“India’s services sector lost growth momentum in January, although the PMI remained well above the 50-break-even level. The business activity and new business PMI indices eased to their lowest levels since November 2022 and November 2023 respectively,” Pranjul Bhandari, Chief India Economist at HSBC, said.

Increase in international sales

In contrast to the trend for total new orders, there was a quicker increase in international sales. Survey participants noted gains from clients in Asia, Europe, the Middle East and the Americas. The overall rate of expansion hit a five-month high.

“… New export business partly countered the downtrend and continued to rebound from a dip in late-2024, in line with official data which showed India’s services exports shinning in December and capturing a larger share of global trade,” Mr. Bhandari said.

Service providers confident

The survey noted that ongoing improvements in new business intakes and rising capacity pressures prompted service providers to recruit additional staff at the start of the last fiscal quarter.

According to them, full- and part-time positions had been filled. The rate of job creation accelerated from December and was among the fastest seen since data collection started in December 2005.

Service providers in India were confident of a rise in business activity over the course of the coming 12 months. Some of the reasons listed for upbeat forecasts include advertising, efforts to price competitively and new client enquiries.

On the price front, services companies noted another uptick in their expenses largely due to rising staff costs, but also greater food prices. As a result of rising cost burdens and demand resilience, prices charged for the provision of Indian services increased further at the start of 2025.

Meanwhile, India’s private sector economy lost some growth momentum in January, as a quicker increase in factory production was more than offset by a softer expansion in services activity.

The HSBC India Composite Output Index fell from 59.2 in December to a 14-month low of 57.7.

Composite PMI indices are weighted averages of comparable manufacturing and services PMI indices. Weights reflect the relative size of the manufacturing and service sectors according to official GDP data.

The HSBC India Services PMI is compiled by S&P Global from responses to questionnaires sent to a panel of around 400 service sector companies.

Moody’s corporate headquarters in New York. File
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Reuters

Moody’s Analytics on April 12 projected India’s economy to expand 6.1% in 2024, lower than 7.7% growth clocked in 2023.

It said output in India remains 4% lower than it would have been without the COVID pandemic and its various aftershocks — from supply snags to military conflicts abroad.

“Economies in South and Southeast Asia will see some of the strongest output gains this year, but their performance is flattered by a delayed post-pandemic rebound. We expect India’s GDP to grow 6.1% in 2024 after 7.7% last year,” Moody’s Analytics said.

In its report titled ‘APAC Outlook: Listening Through the Noise’, Moody’s Analytics said the region overall is doing better than other parts of the world. “The APAC (Asia Pacific) economy will grow 3.8% this year, which compares with a growth of 2.5% for the world economy,” it said.

Moody’s Analytics said looking at the GDP relative to its trajectory prior to the pandemic shows that India and Southeast Asia have seen some of the largest output losses worldwide and are only beginning to recover. With regard to inflation, it said the outlook for China and India is more uncertain.

“Inflation in India is at the opposite extreme, with recent consumer price inflation rates hovering around 5%, close to the upper end of the Reserve Bank of India’s target range of 2 to 6% and without clear evidence of a trend towards slowing price pressures,” said the report authored by Stefan Angrick, Senior Economist, and Jeemin Bang, Associate Economist at Moody’s Analytics.

Earlier this month, the Reserve Bank said food price uncertainties continue to weigh on the inflation trajectory going forward, and retained 4.5% retail inflation projection for the current fiscal 2024-25.

“Continuing geopolitical tensions also pose upside risk to commodity prices and supply chains,” RBI said. RBI forecast June quarter inflation at 4.9% and September quarter at 3.8%. For December and March quarters, inflation is projected at 4.6% and 4.7%, respectively.

Unfortunately, ‘wise’ , ‘efficient’ and ‘government expenditure’ don’t usually feature in the same sentence. | Getty Images
| Photo Credit: Getty Images

“The Indian economy is expected to grow at an average rate of 6.7% per annum until the end of the decade,” CRISIL said in its latest report.

The economy will grow at this rate between the financial years 2024 to 2031, a notch above the pre-pandemic average of 6.6%. According to CRISIL, the key contributor to this trend will be capital.

“This is a result of the investment-driven strategy of the government when the private sector was shy of making investments.”

“The government increased capital expenditure significantly to support building expenditure and providing interest-free loans to states to bolster their own investment efforts,” the report said.

CRISIL said that after a robust 7.3% growth this fiscal, there will be moderation to 6.4% in the next financial year.

“There is also a need to monitor the impact of the escalation of the Middle East conflict on energy and logistics costs,” it said. “In India, the inflation level of 5.7% in December 2023 was driven solely by volatile vegetable prices and food-grain inflation,” according to the report.

“This will keep Reserve Bank of India cautious on the rate front as it eyes the four per cent inflation target,” CRISIL said.

“The continued softening of core inflation and deflation in fuel prices gives us hope, but the persistent high price levels of the food items, which has substantial weight in consumer price index (CPI), keep the risks of its transmission to non-food components,” the report said.

CRISIL said the Federal Reserve of the U.S. is expected to cut rates this year. The strong labour market data and higher-than-expected inflation have once more cast doubts on the timing and the extent of rate cuts expected to begin this year.