India's Services Sector Growth Slows Down in December Amid Competition and Exchange Rate Worries

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India's services sector growth slowed down in December, according to a recent report from S&P Global. The HSBC India Services PMI Business Activity Index fell to 58.0, marking the slowest pace of expansion since January, but still indicating strong growth. The sector has continued to grow above the 50-mark, separating growth from contraction, for over four years. The slowdown in growth was attributed to softer expansion in new business, but new business inflows continued to rise at an above-trend pace. Firms attributed growth to competitive pricing, demand, and positive client interest, but highlighted increased competition and cheaper alternative service providers as constraints. Notably, export demand strengthened in December, with new export orders rising at a marked pace and faster than in November. This was supported by gains from Asia, North America, the Middle East, and the UK. Despite the broader slowdown, services exports rose to a greater extent in December, likely driven by the rupee's weakness making exports more competitive. Price pressures edged up in December, but remained relatively benign. Input costs increased at a quicker pace than in November, driven by higher expenses related to building materials, chemicals, medical supplies, salaries, and office maintenance. Selling prices also rose slightly, with fewer than 3% of firms hiking prices. Employment growth stalled in the services sector in December, ending a hiring trend that began in June 2022. Most firms reported no change in staffing levels, citing stable workloads and limited pressure on operating capacity. Business sentiment softened further, with confidence slipping to its lowest level in nearly three-and-a-half years amid concerns over market uncertainty and exchange rate movements. However, firms remained optimistic about growth prospects in 2026. The HSBC India Composite PMI Output Index, which combines manufacturing and services activity, eased to 57.8 in December from 59.7 in November, indicating the weakest pace of private-sector expansion since January 2025. Despite the slowdown, the index remained well above its long-run average of 55, indicating continued expansion in overall economic activity.