India’s services sector accelerates in Oct, boosting economic outlook

Demand surge drives October growth in the services industry, elevating employment and inflation concerns

November 6, 2024

The HSBC India Services PMI, compiled by S&P Global, rose to 58.5, marking the 39th consecutive month above the expansion threshold of 50

Domestic and international demand bolstered new business and export activity, spurring the fastest employment growth in over two years

Inflation risks persisted due to higher food, labour, and transport costs, prompting service providers to increase prices

The Reserve Bank of India may delay rate cuts amid inflation fears following September's spike to a nine-month high

India’s services industry gained momentum in October, bouncing back from a 10-month low in September due to robust domestic and international demand. The HSBC India Services Purchasing Managers’ Index (PMI), compiled by S&P Global, showed an increase to 58.5 from September’s 57.7, surpassing the preliminary estimate of 57.9. The index, which has stayed above 50 for 39 months, indicated continuous expansion in the sector.

Experts observed that the services industry experienced strong output, demand, and hiring growth during October. Increased business activity led to a surge in the new business sub-index and stronger exports across Africa, Asia, the Americas, the Middle East, and Britain. The sector’s hiring pace hit a 26-month high, indicating a marked rise in employment levels.

The business outlook for the upcoming year remained optimistic, though it softened slightly compared to September. Services firms leveraged the robust demand to implement price hikes, countering a three-month high in cost pressures driven by rising food, labour, and transportation expenses. These cost increases contributed to mounting inflation risks, especially after consumer inflation surged to 5.49% in September—a nine-month peak—potentially constraining consumer spending.

This inflationary trend might prompt the Reserve Bank of India (RBI) to maintain current interest rates longer than anticipated, despite some economists forecasting a potential 25-basis point reduction to 6.25% next month.

Meanwhile, the manufacturing sector also reported gains, with its PMI rising to 57.5 in October. Combined with the services sector’s performance, the overall Composite PMI climbed to 59.1 from 58.3 in September, underlining the strengthening of Asia’s third-largest economy as it entered the final quarter of 2024.

Source: Economic Times

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