India’s services sector growth eased in October, with the Purchasing Managers’ Index (PMI) falling to a five-month low, signaling softer demand conditions and a slowdown in new business inflows. While activity remained in expansionary territory, the moderation hints at weakening momentum in the post-monsoon period. Despite the dip, the sector continued to benefit from robust domestic consumption and resilient employment trends. Analysts believe the moderation is temporary, attributing it to seasonal factors and global economic uncertainty rather than a structural decline in India’s services growth trajectory.
Services Activity Moderates After Strong Quarter
After months of sustained expansion, India’s services economy recorded a modest slowdown in October. The S&P Global India Services PMI dropped to 58.4, down from 60.0 in September, marking its lowest reading since May. While a PMI above 50 still indicates growth, the decline suggests a cooling pace of business activity, particularly in consumer-facing and export-oriented services.
The latest figures indicate that firms experienced softer demand from both domestic and international clients. However, most survey participants maintained an optimistic outlook, citing expectations of stronger orders in the coming months and continued resilience in India’s consumption-driven economy.
Demand Conditions Weaken, But Employment Stays Firm
Despite the moderation in new business inflows, employment levels in the service sector remained stable, reflecting sustained confidence among firms in long-term growth prospects. Companies continued to hire to meet ongoing and anticipated business requirements, even as some clients delayed spending decisions amid economic uncertainty.
Export orders, a key driver in recent months, showed signs of fatigue, especially in technology, finance, and consulting services. Analysts attributed the slowdown in overseas demand to weaker global growth and cautious spending by international clients.
Nonetheless, domestic demand—particularly from retail, healthcare, and hospitality sectors—provided a buffer, helping maintain expansionary momentum across much of the services industry.
Inflation and Input Costs Pressure Margins
Rising input and wage costs remained a concern for services firms, which reported higher prices for materials and services. Although the rate of cost inflation eased slightly compared to September, many companies passed on part of the cost burden to consumers, leading to a continued rise in output prices.
This inflationary trend, coupled with sluggish demand in certain segments, exerted mild pressure on profit margins. Economists suggest that while cost pressures are moderating compared to last year, sustained vigilance will be necessary as geopolitical tensions and volatile energy prices continue to influence inflation expectations.
Composite PMI Shows Economy Still in Expansion
The broader S&P Global India Composite PMI, which combines manufacturing and services data, slipped to 58.0 in October from 60.9 in September, reflecting an overall deceleration in private sector growth. The reading, however, remains comfortably above the long-run average, indicating that India’s economy is still expanding at a healthy pace.
Manufacturing growth helped offset some of the drag from the services slowdown, with steady industrial output and strong domestic consumption supporting overall economic resilience. Economists remain optimistic that India will sustain GDP growth of around 6.5% in FY26, bolstered by strong fundamentals and a growing investment pipeline.
Outlook: Temporary Softness Amid Structural Strength
While October’s PMI data points to a cooling in momentum, analysts view it as a short-term correction rather than a signal of enduring weakness. Seasonal factors, such as post-festival adjustments and a high base effect from previous months, likely contributed to the dip.
Looking ahead, the services sector is expected to regain traction as festive spending, government infrastructure outlays, and rising digital adoption continue to drive activity.
S&P Global noted that Indian firms remain among the most optimistic globally, with business confidence buoyed by expectations of a stronger order pipeline, favorable policy environment, and continued urban demand growth.
Conclusion
India’s services sector, though witnessing a temporary moderation in October, continues to be a pillar of economic growth, supported by domestic demand and business optimism. The five-month low in PMI reflects cyclical softening rather than a structural slowdown. With resilient hiring trends, easing inflation, and steady manufacturing support, India’s economic outlook remains positive—positioning the country as one of the few major economies maintaining robust momentum amid a challenging global environment.
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