New Delhi [India]: The HSBC India Services Purchasing Managers’ Index (PMI) surged to 59.0 in February, up from January’s 26-month low of 56.5, signaling a sharp expansion in India’s services sector. The rise was fueled by increased domestic and international demand, leading to higher new orders, increased employment, and robust business activity, as per the report.
The February PMI reading was significantly above the long-run average, supported by enhanced productivity, strong demand, and a boost in new business orders. The services sector’s growth reflects confidence in sustained economic expansion despite ongoing cost pressures.
Key Drivers of Growth: Rising Demand and Exports
New orders grew at a faster pace in February compared to January, bolstered by improved international demand. Service providers reported stronger exports to Africa, Asia, Europe, the Americas, and the Middle East, effectively managing rising demand and easing capacity pressures.
The sector also witnessed one of the fastest hiring rates since data collection began in December 2005. Both full-time and part-time staff were recruited, highlighting the sector’s confidence in continued growth.
Inflation Eases but Cost Pressures Persist
Despite rising hiring costs and higher expenses on food, materials, and packaging, overall cost inflation eased to a four-month low, aligning with historical trends. However, the rate of increase in selling prices for goods and services was the highest in three months, as businesses passed additional costs onto customers.
Private Sector Growth and Manufacturing Slowdown
The HSBC India Composite Output Index, which tracks both manufacturing and services, rose from 57.7 in January to 58.8 in February, indicating stronger private sector growth. While the services sector was the primary driver of this acceleration, manufacturing growth slowed down during the same period.
The private sector also experienced a faster rise in employment, maintaining strong payroll expansion compared to the previous month’s record growth. However, backlogs of work continued to increase, suggesting that demand outpaced companies’ processing capacities.
Expert Insights: Optimism Amid Cautious Outlook
Pranjul Bhandari, Chief India Economist at HSBC, commented, “India’s services business activity index rose to 59.0 in February 2025, up significantly from January’s 26-month low of 56.5. Global demand played a major role in driving output growth for India’s services sector.”
Bhandari also highlighted that while job creation and charge inflation remained strong, business sentiment dipped to a six-month low due to concerns over cost pressures and future demand.
Sector-Specific Performance
Among the four key service industry segments:
- Consumer Services faced the highest cost pressures.
- Transport, Information & Communication firms reported the strongest rise in selling prices.
Advertising, improved customer relations, and efficiency gains helped keep business confidence broadly positive, with about one-quarter of firms expecting growth in the next year.
Key Highlights:
- Services PMI: Rose to 59.0 in February from 56.5 in January.
- Hiring Surge: Fastest rate since December 2005.
- Inflation: Eased to a four-month low despite ongoing pressures.
- Private Sector: Stronger growth led by services, but manufacturing slowed.
- Challenges: Rising backlogs and cautious business sentiment.