India’s services economy lost momentum for a second consecutive month in March, growing at its slowest pace of expansion in more than a year as demand cooled and inflationary pressures built amid an ongoing Iran war.
The HSBC India Services Purchasing Managers’ Index, compiled by S&P Global, fell to 57.5 last month from 58.1 in February. While the reading remains above the 50-mark that separates expansion from contraction, it represents the softest rate of expansion since January 2025.
The slowdown reflects a cooling in new business intakes, which moderated to a 14-month low. Survey participants noted that domestic demand was weighed down by market volatility and the lingering impact of geopolitical tensions in the Middle East, which dampened tourism and broader commercial activity.
Export Engine Revs Up
Despite the domestic deceleration, India’s service providers saw a surge in international appetite. New export orders rose at the fastest clip since mid-2024, with broad-based gains reported from markets in Asia, Europe, and the Americas.
“Demand remained resilient, led by new export orders,” HSBC Chief India Economist Pranjul Bhandari said in a statement. “As such, service providers’ expectations for future activity remained positive.”
The divergence between cooling domestic sales and heating foreign demand suggests that India’s services engine is increasingly leaning on global markets to offset local fatigue.
Inflationary Headwinds
A primary concern for policymakers will be the sharp spike in operating expenses. Input cost inflation accelerated to its fastest pace in nearly four years, driven by a broad rally in the prices of fuel, electricity, and essential food items including meat, vegetables, and cooking oil.
In response, service providers hiked their own selling prices at the quickest rate in seven months to protect margins. Consumer services saw the most aggressive increase in input costs, while the Finance & Insurance segment led the way in raising charges for end-users.
“Input cost inflation accelerated to its fastest pace since 2022, indicating that higher fuel, transport and logistics costs are feeding into services,” Bhandari said.
Labour Market Resilience
The cooling activity has yet to hit the labour market. In a sign of corporate confidence, job creation accelerated to its strongest pace since mid-2025. Firms reported a third straight month of hiring, bolstered by the highest level of business optimism in nearly 12 years.
Companies attributed this “upbeat” outlook to aggressive advertising campaigns and hopes for a recovery in domestic market conditions.
Composite Weakness
The broader economy also showed signs of a soft patch. The HSBC India Composite PMI Output Index, which weights both manufacturing and services, dropped to 57.0 from 58.9. This marks the weakest expansion for the private sector in nearly three-and-a-half years.
While manufacturers saw a slight improvement in international demand, the composite data reinforces a narrative of a cooling economy grappling with “sticky” inflation and a domestic market that is finally beginning to feel the pinch of higher costs.
