India’s services sector Growth
India’s services sector concluded 2023 on a positive note, experiencing its most rapid expansion in three months in December, driven by robust demand and an optimistic outlook for the coming year, as per the HSBC India Services Purchasing Managers’ Index (PMI), compiled by S&P Global.
The index surged to 59.0 in December from the one-year low of 56.9 recorded in November, marking the 29th consecutive month of expansion, well above the crucial 50-mark that distinguishes growth from contraction.
Pranjul Bhandari, Chief India Economist at HSBC, highlighted, “India’s services sector ended the year on a high note, with an uptick in business activity, led by a three-month-high new orders index.”
Key Highlights:
Buoyant Demand Boosts Business Activity:
Favourable economic conditions and optimistic demand fueled an increase in the new business sub-index, bouncing back from the year low in November.
International demand, however, grew at its slowest pace in six months.
Positive Outlook for the Future:
Services firms anticipate the momentum to persist in the coming year, reflected in the future activity sub-index, a vital indicator of business optimism.
Job Creation Lags Behind:
Despite the positive sentiment, robust job creation remains elusive. The pace of hiring increased in December but remained subdued.
Inflationary Pressures Eased:
Operating costs registered the slowest rise since August 2020, providing some relief from inflationary pressures.
Output Price Inflation Surpasses Input Costs:
Firms, however, passed on additional costs to clients at an accelerated pace. This marked the first time in over three years that the rate of output price inflation exceeded that of input costs, signaling improved corporate margins.
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Inflation Expectations and Monetary Policy:
Inflation in India is projected to stay within the Reserve Bank of India’s target range of 2-6% for the current fiscal year and the next, according to a recent Reuters survey.
The RBI is anticipated to reduce interest rates in the third quarter of this year, aligning with the expected cut by the U.S. Federal Reserve around the same time, as per a separate Reuters survey.
While the manufacturing sector index dipped to 54.9 in December, the robust performance in services lifted the overall HSBC India Composite PMI Output Index to a three-month high of 58.5.
