India’s Services Sector Growth Slows Slightly In March Amid Softer Demand: PMI Data

"Domestic and international demand remained fairly buoyant, despite being sequentially a tick lower than the month before," said Pranjul Bhandari, Chief India Economist at HSBC

While manufacturing growth outpaced that of services, both sectors experienced a slowdown in employment growth and business confidence

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India’s dominant services sector experienced a slight slowdown in March, as softer demand tempered growth, despite firms raising prices at the slowest pace in three and a half years. Additionally, job creation showed signs of deceleration, according to a new survey.

The HSBC Final India Services Purchasing Managers' Index (PMI), compiled by S&P Global, declined to 58.5 in March from 59.0 in February. However, it remained above the preliminary estimate of 57.7, indicating robust sector performance.

The index stayed well above the 50-mark, which separates growth from contraction.

"Domestic and international demand remained fairly buoyant, despite being sequentially a tick lower than the month before," said Pranjul Bhandari, Chief India Economist at HSBC.

Domestic demand continued to be a major growth driver, with new business expanding steadily, though at a slightly slower pace than in February.

Foreign demand showed signs of weakness, with international orders increasing at the slowest rate in 15 months, reflecting potential vulnerabilities to global economic shifts, including the impact of US President Donald Trump’s recently announced tariff measures.

Inflationary pressures eased, with input cost inflation rising at its slowest pace in five months. This, coupled with intense market competition, resulted in the weakest growth in output prices since September 2021.

The competitive environment dampened business sentiment for the year ahead, with the future activity index dropping to a seven-month low. This decline also affected employment growth, as the pace of hiring new staff slowed to its lowest level in nearly a year.

"Looking ahead, business sentiment remains generally positive, but intensifying competition presents a significant challenge to many survey participants," added Bhandari.

Strong Manufacturing Growth

The HSBC India Composite PMI, reflecting strong manufacturing growth, rose to a seven-month high of 59.5 in March, up from 58.8 in February, indicating robust overall private sector expansion.

While manufacturing growth outpaced that of services, both sectors experienced a slowdown in employment growth and business confidence.

Diminished inflationary pressures and weak business sentiment may prompt the Reserve Bank of India to implement another 25 basis point rate cut on April 9, aiming to support an economy that likely grew at its slowest pace in four years during the last fiscal year.