India's Service Sector: Positive Growth Amidst Slower Rates
The seasonally adjusted HSBC India Services Business Activity Index recorded 60.6 in February, a slight decrease from 61.8 in January. Despite this dip, the index comfortably stayed above the neutral mark of 50.0, signaling a sharp rate of expansion well above the series history since December 2005.
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Increasing Role of Service Sector in Indian Economic Growth
Sector-wise Growth:
Across the Board Expansion: Business activity increased across all parts of the service sector, with Finance & Insurance leading the growth, while Real Estate & Business Services experienced the slowest rise.
Demand Trends:
Upturn in Demand: February witnessed a notable upturn in demand across the service sector, with inflows of new business expanding for the thirty-first consecutive month.
International Sales: New business from abroad continued to rise for the thirteenth successive month, with solid expansion reported from Australia, Asia, Europe, the Americas, and the UAE.
Cost Pressures and Pricing:
Weakest Cost Pressures: The latest PMI data indicated the second-weakest cost pressures in the sector since August 2020.
Slight Inflation: Despite rising operating expenses, the rate of inflation in the sector remained slight, below its long-run average and cooling to the weakest in two years.
Margin Protection: Companies sought to protect margins by raising prices charged to customers, but the inflation rate was slight and below average.
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Employment Trends:
Job Creation: Companies created jobs in response to rising workloads, but easing capacity pressures and lower confidence towards the outlook dampened employment growth.
Weakened Hiring Growth: The pace of hiring growth was fractional and the joint-slowest in the current 21-month sequence of job creation.
Business Confidence:
Weakened Confidence: Business confidence regarding the year-ahead outlook for activity weakened in February.
Optimistic Outlook: Despite the dip, around 26% of companies foresee growth, while only 2% anticipate a fall. Firms citing buoyant client appetite and greater public optimism are contributing to this optimistic outlook.
Conclusion:
India's service sector displays resilience, maintaining growth despite some slowdown in rates. International demand and positive domestic factors contribute to an overall positive outlook, with companies cautiously managing costs and prices to sustain the upward trajectory. The sector's ability to navigate challenges and adapt to changing conditions remains crucial for future performance.
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