By Siddhi Nawar
India’s services sector, at the close of the calendar year, displayed strong business optimism driven by a higher rate of expansion, rising from 58.4 in November to 59.3 in December, according to the HSBC Services PMI report. The report highlights the services sector’s strongest rate of expansion in four months. “Buoyant underlying demand was identified by companies as the primary factor behind output growth,” states the report.
The Finance & Insurance sector once again recorded the most significant growth in both new orders and business activity among all sub-sectors.
Ines Lam, an economist at HSBC, expressed her views on the report: “India’s services companies expressed strong optimism in December as business activity growth surged to a four-month high.” She elaborated, “Strength in the services PMI stands in contrast with the growing signs of a slowdown in the manufacturing industry.”
Softening Inflation Amid Greater Business Expenses
The release states that the services sector experienced a mixed economic landscape. While business expenses continued to rise, the rate of inflation eased compared to November’s 15-month high. Companies reported increased costs for food, labor, and materials, prompting them to raise their service charges once again.
Despite the slower pace, charge inflation remained above its long-term average, with Consumer Services firms bearing the highest cost pressures and the Transport, Information, and Communication sectors recording the steepest rise in fees.
Demand for services continued to grow, as evidenced by an increase in new business intakes. However, this growth strained operational capacities, with outstanding business volumes rising at the fastest pace in seven months.
Hiring Momentum Stays Strong
In response to these pressures, service providers expanded their workforce, although the rate of employment growth moderated from November. Still, hiring activity remained robust, ranking among the strongest levels recorded since data collection began in December 2005.
Optimistic forecasts, coupled with rising capacity demands and strong new business growth, underline the sector’s continued resilience amid challenging conditions.
Growth in Aggregate Output
The composite PMI indicates the Indian private sector’s stronger rise in output at the close of the calendar year, driven by accelerated growth in the services sector. The HSBC India Composite Output Index rose to 59.2 in December, up from 58.6 in November, marking the sharpest growth in four months.
The services sector recorded a faster expansion in business activity, offsetting a slight deceleration in manufacturing output. Similarly, robust growth in new business at service firms counterbalanced a marginal slowdown among goods producers, leading to stronger overall sales growth.
Employment trends varied across sectors, with the services sector continuing to lead job creation, albeit at a slower pace, while manufacturing saw an uptick in hiring. At the composite level, employment growth moderated but remained among the strongest on record.
Inflationary pressures eased in December, as input costs and prices for goods and services rose at a slower pace compared to previous months.
