The Indian service sector is witnessing solid growth because of favourable economic growth, robust demand, and an increasing intake of new projects. However, there are signs of weakness. The HSBC India Services Business Activity Index fell from 61.2 in March to 60.8 in April, but it is still at its highest level in the last 14 years. The ongoing higher interest rates are said to be hampering the growth. For instance, in April this year, the PMI (Purchasing Manager’s Index) sub-index for new exports dropped, marking a weak beginning to FY 2025. This sluggish growth in developed markets has negatively impacted the growth of the Indian service sector.
Also, the ongoing moderation in demand means that Indian companies are losing their pricing power, which they had a strong footing in earlier. The companies are now bearing high input costs, labour costs, etc., leading to high operating expenses and reduced margins.
Not only this, but the impact of the rise in crude oil prices and changes in the global supply chain also needs to be monitored. These challenges and inflation can further result in delayed interest rate cuts, therefore further hampering the growth.
Even in the midst of these challenges, As per the PMI report, “But for now, confidence among Indian service providers about business activity in the year ahead rose to a three-month high in April. Marketing efforts and efficiency gains, plans for competitive pricing, and predictions that demand conditions will remain favourable boosted optimism.” It is yet to be seen what will happen because Gaura Sen Gupta, Chief Economist at IDFC First Bank, said: “India’s GDP growth is expected to moderate to 6.5% FY25 from around 8% likely in FY24, with a slowdown in companies’ profit growth as input cost pressures rise.” Which is an indicator of declining growth.
