January's biz growth at 14-month low due to weak services demand: PMI data

India's business activity grew at the slowest pace in over a year in January, a survey showed, highlighting emerging cracks in its world-beating economic growth at start of 2025 although firms hired new staff at a record pace.

The services industry is the major engine of Asia's third-largest economy and the latest data raises concerns about the sustainability of a strong economic performance with government estimates pointing to slower overall growth of 6.4% this fiscal year.

HSBC's flash India Composite Purchasing Managers' Index, compiled by S&P Global, fell to 57.9 in January, the lowest reading since November 2023, from December's final reading of 59.2.

Still, the index has been above the 50-mark separating expansion from contraction for three-and-a-half years, the longest continuous growth streak since mid-2013.

While manufacturing remained buoyant with the PMI index at a six-month high of 58.0 from 56.4 in December, it was more-than-offset by the slump in the services index to 56.8 in January - its lowest in 26 months - from 59.3.

"India's manufacturing sector started the year strong, with output and new orders bouncing back from a relatively weak third fiscal quarter," noted Pranjul Bhandari, chief India economist at HSBC.

"The cooling in growth in new domestic business in the services sector, however, highlights a potentially emerging weak spot in the economy."

This divergence was starkly evident in the indicators for demand. Manufacturers witnessed a surge in new orders and output, while services firms recorded the weakest new sales in 14 months.

Despite those headwinds there were some bright spots. International demand improved across the board with overall exports posting the fastest growth in six months.

Composite job creation reached an all-time high since the survey's inception in December 2005.

That's good news for the private sector where millions join the workforce each year in the world's most populous country. Providing quality jobs remains a challenge for Prime Minister Narendra Modi.

However, inflationary pressures intensified. Cost inflation eased in manufacturing, but spiked in the services sector to the highest since August 2023. Services firms increased prices faster, suggesting they passed on rising costs to clients.

High inflation risks especially amid a weaker currency could add to reasons for the Reserve Bank of India's rate-setting panel, headed by new Governor Sanjay Malhotra, not to kickstart monetary policy easing when it meets next on Feb. 5-7.

Meanwhile, the business outlook for the coming year was mixed as buoyant forecasts put manufacturing companies at their most optimistic since May 2024, but the sentiment at services firms slipped to a three-month low due to competition concerns.