New Delhi, Sep 4: India’s services sector continued to grow in August, but the recovery remained cautious as businesses faced softer bookings, intense competition and operational challenges. The latest survey suggests that while demand has not disappeared, companies are finding it harder to maintain the strong pace of expansion seen in previous months.
The HSBC India Services PMI Business Activity Index rose to 54.1 in August from 53.3 in July, signalling continued expansion. However, the reading was still the second-weakest since March 2022, showing that the sector is growing but at a considerably slower pace than during its stronger phases.
The moderation was largely linked to weaker bookings and slower growth in new business. Companies also reported pressure from strong competition and reduced transport operations, factors that can make it more difficult for businesses to increase sales and maintain margins.
For businesses, the message from the August data is mixed. On one hand, demand remains strong enough to keep the sector in expansion territory. On the other, companies are operating in a more competitive environment where customers may be more selective and businesses have less room to raise prices.
Operating expenses are another concern. Service providers reported higher spending on areas including digital platforms, electricity, labour, marketing and regulatory requirements. Rising costs can squeeze profitability, particularly for smaller businesses that have less flexibility to absorb higher expenses.
There is, however, an encouraging side to the latest numbers. Employment in the services sector increased at its fastest pace in 15 months, indicating that companies are still investing in their workforce despite the slower growth environment. Hiring was particularly linked to customer service and digital operations, suggesting that businesses continue to prepare for longer-term demand.
International demand is also providing support. New export orders continued to increase, giving Indian service providers an additional source of business at a time when some domestic bookings remain subdued. A stronger export pipeline could help companies diversify their revenues and reduce dependence on local demand.
The slowdown could nevertheless have wider implications if it persists. Services account for a large share of India’s economic activity and employment, so prolonged weakness could make companies more cautious about expansion, hiring and investment. It could also affect sectors such as hospitality, transport, professional services, technology and consumer-facing businesses.
The August numbers also come against a backdrop of softer manufacturing activity. India’s manufacturing PMI fell to 52.8 in August, a five-year low, while the composite PMI remained in expansion territory. Together, the indicators point to a broader moderation in private-sector activity rather than an outright downturn.
For policymakers and businesses, the immediate priority will be to strengthen demand while keeping operating costs under control. If consumer spending, business investment and export demand improve in the coming months, the services sector could regain momentum.
For now, the August survey presents a cautiously resilient picture. India’s services economy is still expanding and companies are continuing to hire, but the slower pace shows that businesses are navigating a period of tighter competition, rising costs and more measured demand.