India’s services sector growth hits four-year low as domestic demand weakens
Key Takeaways
- •The HSBC India Services PMI fell to 53.3 in July from 57.4 in June, marking its weakest level since February 2022 while remaining above 50.
- •The HSBC Flash India Composite PMI Output Index declined to 54.3, the lowest composite reading since March 2022.
- •Manufacturing also weakened, with the Manufacturing PMI slipping to 53.5, its softest level since August 2021.
- •Slower services growth was driven mainly by weaker domestic demand, as new business inflows rose at their slowest pace since February 2022.
- •New export orders accelerated in July, supported by demand from the UAE, the UK and the US, while business confidence fell to a seven-month low.
India’s services sector, long the engine room of the country’s economic expansion, slowed notably in July. The HSBC India Services PMI, compiled by S&P Global, fell to 53.3 from 57.4 in June. Although the reading remained above the 50 threshold that separates expansion from contraction, it was the weakest since February 2022.
What the numbers show
The slowdown was not limited to services. The HSBC Flash India Composite PMI Output Index, which combines services and manufacturing, declined to 54.3 in July from 57.1 in June. That marked the lowest composite reading since March 2022.
Manufacturing also softened. The Manufacturing PMI slipped to 53.5 from 54.2, its weakest level since August 2021.
According to the data, the main factor behind the services slowdown was weaker domestic demand. New business inflows rose at their slowest pace since February 2022, with firms pointing to increasing competitive pressures and fewer new enquiries from domestic clients. That matters because domestic demand has been a key support for India’s growth momentum even as global conditions remain uneven.
New export orders, however, accelerated in July, supported by stronger demand from international markets including the UAE, the UK, and the US. Employment in the services sector showed modest improvement. Input cost inflation also eased, while output price inflation increased, suggesting companies were continuing to pass on costs even as demand softened. Business confidence fell to a seven-month low.
The July readings were collected mainly between July 8 and July 27.
Broader context
The strength in export orders from the US, UK, and UAE suggests India’s external sector remained relatively resilient, helping offset some of the weakness in domestic demand. With both services and manufacturing easing, the composite reading points to a broader cooling in private-sector activity rather than a slowdown confined to one segment.
Going forward, the key question is whether the services PMI can stabilize near current levels or continue to decline. A reading in the low 50s still indicates growth, but one that is losing momentum. A move below 50 would indicate contraction.
