In July 2024, India’s services sector experienced a slight moderation in growth. The seasonally adjusted HSBC Services Purchasing Managers’ Index (PMI) decreased to 60.3 from 60.5 in June. Despite this marginal dip, a PMI above 50 still indicates expansion, underscoring the sector’s robust performance.
Inflationary Pressures and Rising Costs
One of the key challenges faced by the services sector in July was the persistent inflationary pressure. Rising labor costs and increased prices of raw materials pushed firms to hike their selling prices at the steepest rate in seven years. This inflationary trend, while reflecting strong demand, poses a risk to future growth if not managed effectively.
Demand Dynamics
The sector’s performance was buoyed by strong domestic and international demand. New orders saw significant growth, driven by technological investments and a growing online presence. Export orders, particularly from countries like the US, China, and Japan, also grew at an accelerated pace, highlighting India’s competitive edge in global services.
Employment and Business Sentiment
Despite cost pressures, the services sector remained optimistic about future growth. Businesses continued to hire, with the rate of job creation being among the highest in nearly two years. This positive sentiment is fueled by confidence in sustained demand and increased customer engagement, which are expected to drive sales further.
Government and Policy Support
The Indian government has played a crucial role in fostering the growth of the services sector. Through policy reforms and investments in infrastructure, the government has created an enabling environment that promotes competitiveness and attracts investment. The sector’s financing needs are met through domestic banks, capital markets, and significant foreign direct investment (FDI) inflows.
Services Sector Contribution to the Economy
The services sector continues to be a significant contributor to India’s GDP, accounting for about 55% of the total economy in FY24. This contribution is underpinned by rapid urbanization, expansion of e-commerce platforms, and heightened demand for logistics and digital services.
Export Performance
India’s services exports have been a strong pillar of the sector’s growth. In FY24, services exports maintained steady momentum, accounting for 44% of the country’s total exports. India’s growing reputation as a hub for Global Capability Centres (GCCs) and its increased share in digitally delivered services have significantly boosted this performance.
Financial Indicators
The gross GST collection for FY24 reached ₹20.18 lakh crores, marking an 11.7% increase from the previous year. This reflects robust domestic trading activity within the services sector. Additionally, credit inflow to the sector has seen a continuous upward trajectory, with a year-on-year growth rate surpassing 20% each month since April 2023.
India’s services sector, despite facing challenges such as rising costs and inflation, continues to exhibit strong growth supported by robust demand, favorable government policies, and significant contributions to both domestic and global markets. As the sector navigates these challenges, its resilience and strategic importance to India’s economy remain evident.
