India’s service sector has seen the lowest growth rate in 2024. New businesses and international sales rose but slowest in 9 months. Nevertheless, the HSBC India Service Business Activity Index compiled by S&P Global, continued on the other side of the neutral mark of 50.0 for 35 consecutive months. Even though it fell from 60.9 in August to 57.7 in September. It had reached a high of 61.8 in January.

Service Business Activity Index is the diffusion Index calculated on questions asked to 400 service sector companies about the change in the volume of business activity compared to the previous month. The sectors covered include consumer (excluding retail), transport, information, communication, finance, insurance, real estate and business services. The index is the sum of the percentage of the ‘higher’ response and half of the percentage of the ‘unchanged’ response. The index varies between 0-100. A reading above 50 indicates growth and below 50 indicates decline.

The survey reported job creation, strengthening of business confidence among service providers and the weakest uptick in selling prices in two-and-a-half years. Employment saw positive growth from May to September. The participants also noted a healthy demand condition. Specifically, Finance and Insurance reported growth in output and new orders. The factors that softened growth are fierce competition, cost pressures and changes in consumer preferences. Despite the overall increase in input costs such as outlays on electricity bills, food and other materials, fierce competition also restricted the rise of output costs across the Indian service economy.

The Composite PMI output Index which combines manufacturing and service data fell from 60.7 in August to 58.3 in September. Both factory production and service activity grew at a slower rate, indicating a softening of the momentum.

Pranjul Bhandari Chief Indian Economist at HSBC said “The new business index followed a similar trajectory as the headline figure, indicating the possibility of softer output growth in the coming months. Services companies’ margins have likely been squeezed further, as prices charged rose slower when input cost inflation intensified. A robust new business growth period has led to strong labour demand."

Despite, the Indian service sector showing resilience with positive job creation and confidence levels, there are emerging signs of slowing growth that may impact future performance.