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

India's services sector experienced a significant slowdown in June, reaching its lowest growth pace in 17 months as domestic demand faltered. While the sector remains in expansionary territory, a sharp decline in new orders and a near-halt in hiring have raised concerns about the immediate economic momentum.

Deceleration in Services and Composite PMI

According to the latest HSBC India Services PMI survey, the seasonally adjusted Business Activity Index dropped to 57.4 in June, down from 59.8 in May. Although this figure remains above the 50-mark—indicating that the sector is still growing—the pace of that expansion has moderated sharply.

The slowdown is not limited to services alone. The broader HSBC India Composite PMI Output Index, which tracks both manufacturing and services, also slipped to 57.1 in June from 59.3 in May. This indicates a cooling trend across the wider private sector, characterized by softer sales volumes and a slowdown in job creation.

Weak Domestic Demand and Stalled Hiring

The primary driver behind this deceleration is a significant slump in domestic consumption. New orders saw their weakest increase in more than two-and-a-half years, reflecting reduced client interest and challenging market conditions within India.

This lack of demand has directly impacted the labor market. After seeing robust recruitment in April and May, hiring activity nearly stalled in June. Only approximately 1 per cent of surveyed firms reported additional recruitment, marking the slowest employment growth seen so far in the current cycle. Business confidence has also hit a five-month low, as companies navigate rising competition and concerns regarding rupee depreciation.

The Silver Lining: Robust Export Demand

Despite the domestic headwinds, international markets provided a much-needed cushion for Indian service providers. Overseas demand remained a bright spot, with export orders hitting their strongest growth level in three months.

The surge in external orders was driven by increased demand from a diverse range of global clients, including those in the US, UAE, Singapore, Australia, Canada, Germany, Malaysia, and several Middle Eastern nations like Qatar and Oman. This robust external demand helped offset some of the weakness observed in the local market.

Easing Inflationary Pressures

On a positive note, the period saw a cooling of price pressures. Input cost inflation slowed to its weakest level since November 2025, and output price inflation also moderated. Analysts attribute this easing to the subsiding of geopolitical disruptions in the Middle East, which has helped stabilize costs for many service-oriented businesses.

Key Takeaways

• Growth Slowdown: The services PMI fell to 57.4 in June, the lowest expansion rate in 17 months, driven by the weakest new order growth in over two years.
• Labor Market Stagnation: Hiring has nearly reached a standstill, with only 1% of firms reporting new recruitment due to weakening domestic demand.
• Export Resilience: While domestic markets cooled, export orders achieved a three-month high, supported by strong demand from the US, UAE, and other key international markets.