India's services PMI dips slightly, but hiring touches fastest pace since 2005

November Service PMI: The hiring surge was driven by improving business confidence, rising new orders, and strong international demand in the sector

India’s services sector showed a fractional dip in November, with the Purchasing Managers’ Index (PMI) slipping to 58.4 from 58.5 in October. Despite this slight decline, the HSBC Final India Manufacturing PMI, compiled by S&P Global, reported growth in hiring and sales during the month.

 

“Services sector employment grew at the fastest pace ever recorded since the survey began in 2005. This hiring surge reflected improving business confidence, rising new orders, and robust international demand. However, high food and labour costs drove input and output prices to their highest rates in 15 months and nearly 12 years, respectively,” said Pranjul Bhandari, chief India economist at HSBC.

 

The Services PMI, an economic indicator based on surveys, measures the health of India’s service sector on a monthly basis, offering insights into employment, sales, prices, and inventory trends.

 

An earlier flash survey by HSBC had projected the Services PMI Business Activity Index rising to 59.2 in November from 58.5 in October, driven by record employment growth since December 2005. However, the actual figure suggests a softening in the sector.

 

“Total sales increased at a slower pace than in October, but the seasonally adjusted index was still more than four points above its long-run average, indicating robust growth,” the report noted.

 

Manufacturing PMI and Q2 GDP slowdown

Earlier this week, the manufacturing PMI dropped to an 11-month low of 56.5, down from 57.5 in October. This was below the 57.6 figure projected in a flash PMI survey for the month.

 

The declining PMI aligns with concerns over India’s slowing real gross domestic product (GDP) growth. Real GDP growth fell to a seven-quarter low of 5.4 per cent in the July–September 2024 quarter, significantly lower than the 6.7 per cent recorded in the previous quarter and the 8.1 per cent seen in the same period of 2023. Analysts attributed the slowdown to weaker manufacturing growth and a contraction in mining and quarrying.

 

This GDP figure also fell short of the Reserve Bank of India’s (RBI) estimate of 7 per cent growth for the second quarter. 

 

RBI MPC meet this week

In this economic context, the RBI’s Monetary Policy Committee (MPC) began its meeting today, running through December 6, to review interest rates. The central bank has maintained the repo rate at 6.5 per cent since February 2023 to balance economic growth with inflationary pressures.

 

According to a Business Standard poll, the RBI is expected to keep the repo rate unchanged. However, market participants anticipate a downward revision of the central bank’s growth projection from 7.2 per cent and an upward adjustment of its inflation forecast from the previous estimate of 4.5 per cent.