Post by : Rameen Ariff

India’s services sector, a key driver of the country’s economic momentum, lost pace in October, dipping to a five-month low as new business growth softened and global demand weakened. The latest HSBC India Services Purchasing Managers’ Index (PMI), compiled by S&P Global, fell to 58.9 in October from 60.9 in September, marking the weakest expansion since May.

Despite the slowdown, the index remained well above the 50-point mark that separates expansion from contraction, extending its four-year streak of growth. This underscores the sector’s resilience even amid external headwinds such as global competition and subdued export demand.

Softer Growth Amid Cost Pressures

The report highlighted that while demand buoyancy and GST relief supported overall performance, competitive pressures and heavy rainfall weighed on service output. “October data showed softer, although still substantial, expansions in Indian services output and new business,” the survey noted. Firms also reported measured rises in input costs and selling prices, reflecting a more stable cost environment.

Pranjul Bhandari, Chief India Economist at HSBC, said:

“India’s services PMI softened to 58.9 in October, marking the slowest pace of expansion since May. Competitive pressures and heavy rains were cited as contributors to the sequential slowdown. That said, the services PMI remains well above the neutral level of 50 and its long-run average.”

External Challenges Weigh On Growth

The services industry—covering sectors like finance, communications, transport, and business services—continues to face global challenges. Tightened U.S. spending, rising protectionism, and stricter H-1B visa policies under President Donald Trump have raised operational costs for Indian IT and outsourcing firms. Talk of tariffs on digital services has added to the uncertainty, affecting cross-border service flows.

“While India’s domestic demand remains strong, external conditions, particularly from the U.S. and Europe, are weighing on export-driven services,” an analyst said.

Manufacturing Sector Regains Strength

Interestingly, the slowdown in services contrasts with a pickup in India’s manufacturing activity. The HSBC India Manufacturing PMI rose to 59.2 in October from 57.7 in September, supported by GST relief, better productivity, and technology-driven efficiency gains.

The Composite PMI, which combines both manufacturing and services data, eased slightly to 60.4 in October from 61.0 in September. The moderation largely stemmed from the services sector, while factories continued to show signs of recovery.

Outlook: Optimism Persists Despite Headwinds

Even with the slowdown, companies remain confident about business prospects over the next 12 months. Analysts expect policy support, continued domestic demand, and easing cost pressures to stabilize growth in the months ahead.

“The services sector is adjusting to short-term challenges, but structural fundamentals—like digital adoption, financial inclusion, and infrastructure investments—remain strong,” experts noted.

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