India's services growth slows to 4½-year low in July as demand weakens

New Delhi: India's services sector grew at its slowest pace in nearly four and a half years in July as new business inflows moderated across both domestic and international markets, according to a private survey released on Wednesday. Growth was weighed down by competitive pressures, lower demand, weaker market conditions and order postponements.

The HSBC India Services Business Activity Index fell to a 53-month low of 53.3 in July from 57.4 in June and 60.5 a year earlier. A reading above 50 indicates expansion, while a figure below that signals contraction. "India's services sector continued to expand in July, albeit at a slightly slower pace, as new business growth eased in both domestic and export markets after several months of strong performance," said Pranjul Bhandari, chief India economist at HSBC.

Manufacturing activity also lost momentum, with the Purchasing Managers' Index (PMI) falling to nearly a five-year low of 53.5 in July from 54.2 in June.

As a result, India's composite PMI, which combines manufacturing and services activity, declined to 54.3 in July from 57.1 in June, reflecting the slowdown in services even as factory output growth was marginally higher. Despite slower growth, services firms remained optimistic about business activity over the next 12 months, supported by expectations of stronger demand, improved market conditions, competitive pricing strategies and higher inbound tourism. However, overall business confidence fell to a seven-month low. New business growth in the services sector slowed to its weakest since February 2022. Among the four broad segments of India's service economy tracked by the survey, only finance and insurance recorded faster growth in both output and sales.

Export demand remained a bright spot, with new overseas orders accelerating at a robust pace that was stronger than overall sales growth. Survey respondents attributed the increase to stronger demand from clients in the UAE, UK and the US.

Hiring picked up in July after falling to a six-month low in June, although the recovery remained modest. Only 6% of surveyed firms reported an increase in employment, while 92% said staffing levels were unchanged. "Hiring showed a moderate rebound, while profit margins improved as input costs softened and firms increased their selling prices," said Bhandari.

In terms of costs, input prices continued to rise in July, driven by higher fuel, labour, material, technology and transportation expenses. However, input cost inflation eased to its weakest level in six months and remained below its long-run average. Consumer services recorded the fastest increase in input costs among monitored sectors, although inflation grew at the slowest pace since the beginning of 2026. Even so, the sector recorded the weakest rise in prices charged, while real estate and business services registered the strongest increase in selling prices.