India's business activity hits 14-month low in January
What's the story
India's business activity recorded its slowest growth rate in over a year, as per the HSBC Flash India Composite Purchasing Managers Index (PMI) conducted by S&P Global showed. The PMI reading for January fell to 57.9, its lowest since November 2023, from December's final figure of 59.2. Despite the slowdown, the index has remained above the critical 50 mark separating expansion from contraction for three and a half years—the longest uninterrupted growth streak since mid-2013.
Sectoral impact
Services sector slowdown threatens economic growth
The services sector, which contributes a lot to India's economy, is witnessing a slowdown. This may affect the country's strong economic growth. Government estimates indicate a slowdown to 6.4% overall growth for the ongoing fiscal, lower than revised RBI estimate of 6.6%. The services index dipped to 56.8 in January—the lowest in 26 months—down from 59.3 in December.
Sectoral resilience
Manufacturing sector shows resilience amid slowdown
Unlike the services sector, the manufacturing sector showed resilience with its PMI climbing to a six-month high of 58.0 from 56.4 in December. HSBC's chief economist for India, Pranjul Bhandari, told Reuters that "India's manufacturing sector kicked off the year with strength, as output and new orders recovered from a relatively sluggish third fiscal quarter." However, she added that the slowdown in new domestic business in the services sector indicates an emerging weakness in the economy.
Employment boost
Job creation surges despite economic challenges
Despite the economic slowdown, job creation across sectors hit unprecedented levels since the survey began in December 2005. This is promising for the private sector as millions enter the workforce each year in India. However, ensuring the availability of quality jobs remains a challenge for Prime Minister Narendra Modi's government. Inflationary pressures have also intensified with cost inflation in manufacturing easing but surging in services sector to its highest level since August 2023.
Policy impact
RBI's monetary policy could be influenced by inflation risks
The rising inflation risks, especially with a weakening currency, could sway the RBI's rate-setting panel, headed by new Governor Sanjay Malhotra. The panel is unlikely to start monetary policy easing when it meets next from February 5-7. Moving forward, the business outlook for the next year paints a mixed picture with manufacturing companies seeing their most optimistic forecasts since May 2024 while sentiment among services firms has slipped to a three-month low.