India's services growth hits 17-month low in June
What's the story
India's services sector, a major contributor to the country's economy, witnessed its slowest growth in 17 months during June. The slowdown was driven by a sharp decline in domestic demand and the slowest new business growth in over two-and-a-half years. The HSBC India Services Purchasing Managers' Index (PMI), compiled by S&P Global, fell to 57.4 last month from May's 59.8. The India Composite PMI, which includes both services and manufacturing sectors, also fell to its lowest since March.
Growth indicators
Weaker domestic demand
Despite the decline, the PMI reading remained above the 50 mark, which indicates growth in activity. Pranjul Bhandari, HSBC's chief India economist, said this loss of momentum points to more challenging market conditions and weaker demand, especially domestically. New business, a key indicator of demand, grew at its slowest rate since November 2023.
Demand dynamics
Export orders increase
The decline in domestic demand was partially offset by an increase in international demand. New export orders grew at their fastest pace in three months, providing some relief to the services sector. Headcount growth remained minimal with only about 1% of firms reporting hiring new staff. This is a stark contrast from the robust job creation seen in April and May.
Economic trends
Input cost inflation eases
Input cost inflation eased to a five-month low as the prices of electricity, food, fuel, and transport increased at a slower pace. However, firms passed on less of this burden to clients as the prices charged sub-index fell to a seven-month low. Business confidence also dipped to its lowest in five months with firms citing competition, tough economic conditions, and rupee depreciation as concerns.