India's Services Sector Growth Slows to Weakest Pace Since Early 2022

Growth in India's dominant services sector slowed to its weakest pace in 53 months in July, as new business inflows moderated after a period of robust expansion. The seasonally adjusted HSBC India Services PMI Business Activity Index fell to 53.3 in July from 57.4 in June, marking the lowest reading since February 2022, according to the survey released Monday.

A reading above the 50.0 mark separates expansion from contraction. While the latest figure indicates that the sector is still growing, the sharp decline points to a significant loss of momentum at the start of the third quarter.

Softer Demand and Competition Weigh on Growth

The slowdown was primarily driven by a weaker increase in new business, which also expanded at the slowest rate since February 2022. According to survey respondents, the key factors limiting growth included:

• Fierce competition
• Fading consumer demand
• Softer overall market conditions
• Postponements of client orders

In a contrasting trend, new export orders rose at a solid pace that outstripped total sales growth. Service providers noted improving demand from international clients, particularly in the UAE, UK, and US.

Inflation and Employment Picture

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On the price front, input cost inflation eased to its lowest level since January, despite reports of higher fuel, labor, and transportation costs. However, service providers passed on costs to clients, raising their selling prices at the fastest rate since April.

Employment in the services sector saw a modest increase in July, following a six-month low in June. The survey indicated that hiring was not widespread, with 92% of firms reporting no change in payroll numbers and only 6% adding staff.

Broader Economic Slowdown

The weakness in the services sector was reflected in the broader economy. The HSBC India Composite PMI Output Index, which combines services and manufacturing, fell to 54.3 in July from 57.1 in June, its lowest point since March 2022.

"India’s services sector continued to expand in July, albeit at a slightly slower pace, as new business growth eased in both domestic and export markets after several months of strong performance," said Pranjul Bhandari, Chief India Economist at HSBC, in a statement accompanying the release. Among the four main sub-sectors monitored, only Finance & Insurance recorded a faster rate of expansion in both output and sales.