Bolstered by demand, the services sector performed well in December as HSBC Purchasing Managers’ Index (PMI) rose to 59 as against 56.9 in November.

Services sector has a share of 54 per cent in Gross Value Added (GVA). Performance of the services sector is contrary to manufacturing where PMI dropped to 18 months low to 54.9 in December. Both the PMIs are prepared by S&P Global based on responses from purchasing managers of 400 companies.

Commenting on the latest reading, Pranjul Bhandari, Chief India Economist at HSBC said that India’s services sector ended the year on a high note, with an uptick in business activity, led by a three-months high new orders index. “Input costs rose at a slower pace than in November, continuing the softening trend which began in mid-2023. But output prices rose at a faster pace, indicating improved corporate margins in December,” she said.

Data showed ongoing job creation in India’s service economy. Survey participants indicated that new workers had been hired on both full- and part-time bases. Although slight, the aggregate rate of employment growth was faster than in November. Favourable economic conditions and positive demand trends were the key determinants of output growth, anecdotal evidence showed. Not only did new business intakes rise further in December, but also to the greatest extent in three months. The rise in total new business was supported by continued growth of international sales.

Service providers noted higher demand from clients based in Australia, Canada, Europe, the Middle East and South America during December. However, having eased since November, the rate of expansion in new export orders was modest and the softest since June. Services firms in India expect the strong demand momentum to carry forward to 2024 which, coupled with advertising and better customer relationships, underpinned upbeat forecasts for output. The overall degree of business optimism was strong and better than what was seen in November.

December data continued to signal mild pressure on the capacity of Indian services companies, as outstanding business rose slightly. The pace of accumulation was the quickest in four months, but equal to its long-run average. Amid reports of higher prices paid for food and some other inputs, the average expense of services firms continued to increase at the end of the third fiscal quarter. That said, the overall rate of inflation was modest, below its long-run average and the weakest in nearly three-and-a-half years, the report added.