India’s Services Sector Growth Hits 17-Month Low Amid Weak Demand

India's services sector is facing a significant cooldown as domestic demand falters and hiring activities come to a near standstill. The latest HSBC India Services PMI reveals a sharp moderation in expansion, signaling emerging headwinds for one of the country's most vital economic engines.

Sharp Decline in Services PMI and Domestic Demand

The seasonally adjusted HSBC India Services PMI Business Activity Index dropped to 57.4 in June, down from 59.8 in May. This represents the weakest expansion in 17 months. While the index remains above the 50-mark—indicating that the sector is still growing—the momentum has slowed considerably.

The primary driver behind this deceleration is a notable slump in new orders, which hit their weakest increase in over two-and-a-half years. Service providers reported challenging market conditions and a distinct reduction in client interest, which directly impacted sales and overall output. This cooling of domestic demand suggests that the internal consumption engine that typically fuels Indian services is losing steam.

Hiring Stagnation and Weakening Business Confidence

Perhaps most concerning for the broader economy is the near-stagnation of employment within the sector. After seeing robust recruitment numbers in April and May, hiring activity plummeted in June, with only approximately 1 per cent of surveyed firms reporting additional recruitment.

This slowdown in job creation is mirrored by a decline in business confidence, which fell to a five-month low. Companies are reportedly grappling with several systemic pressures, including heightened competition, difficult economic conditions, and growing concerns regarding the depreciation of the Indian Rupee.

Export Demand: The Silver Lining for Indian Services

Despite the domestic slowdown, the services sector found a crucial lifeline in international markets. Overseas business remained a bright spot, with export orders recording their strongest growth in three months.

The surge in external demand was driven by increased interest from a diverse range of global clients, including those in the US, UAE, Singapore, Australia, Canada, Germany, and Malaysia. This robust external performance helped cushion the sector against the softer domestic landscape, though it was not enough to offset the overall decline in the PMI reading.

The slowdown is not confined to services alone. The HSBC India Composite PMI Output Index, which tracks both manufacturing and services, slipped to 57.1 in June from 59.3 in May. This indicates a synchronized moderation across the wider private sector.

The composite index reflects weaker sales volumes, slower job creation, and more subdued pricing across the board. While price pressures also eased—with input cost inflation hitting its lowest level since late 2024—the overall trend suggests a period of cautiousness as firms navigate a more complex economic environment.

Key Takeaways

  • Growth Moderation: The Services PMI fell to 57.4 in June, marking a 17-month low driven by the weakest increase in new orders in over two years.
  • Employment Slump: Hiring activity nearly stalled, with only about 1% of firms reporting new recruitment, following much stronger trends in previous months.
  • Global Resilience: While domestic demand weakened, export orders hit a three-month high, supported by strong demand from the US, UAE, and several European and Asian markets.