India's Service Sector Growth Slows Amid Rising Costs and Global Challenges

March saw a moderation in India's services sector growth as the HSBC India Services PMI dropped, indicating the slowest expansion in 14 months. Despite strong international demand, domestic challenges and rising input costs have tempered momentum, though businesses remain optimistic about future prospects.

India's services sector experienced a slowdown in March, with the HSBC India Services Purchasing Managers' Index (PMI) dropping to 57.5 from February's 58.1, marking the weakest growth in 14 months, according to a report released on Monday. The index, however, still remained above the long-term average, pointing towards continued overall growth.

Attributing the softer expansion to diminishing new business inflows, the report noted that while international demand remained robust, the growth of output in India's service economy slowed considerably. External pressures, like the Middle East conflict, adversely affected demand, market conditions, and tourism, further constraining output.

New business growth saw a downturn, hitting a low not seen since January 2025, particularly affecting financial, real estate, and transport segments. Despite this, export orders surged, nearing a series peak, driven by demand from regions such as Africa, Asia, Europe, and the Americas. HSBC Chief India Economist Pranjul Bhandari observed that while the sector remains in expansion, momentum has eased due to accelerated input cost inflation.