India's dominant services sector grew at the slowest pace in more than two years in January, though it remained historically strong and translated into a large rate of employment, a business survey showed on Wednesday.
Asia's third-largest economy has been struggling with slackening consumption. To try and boost spending the government gave some tax relief to the middle class at its annual budget on Feb. 1 but shied away from announcing big reforms which are much needed to prop up growth.
The HSBC final India Services Purchasing Managers' Index, compiled by S&P Global, fell to 56.5 in January from 59.3 in December, a tad lower than a preliminary estimate of 56.8 but comfortably ahead of the 50-mark separating contraction from growth.
"The business activity and new business PMI indices eased to their lowest levels since November 2022 and November 2023 respectively," said Pranjul Bhandari, chief India economist at HSBC.
"That said, new export business partly countered the downtrend and continued to rebound from a dip in late-2024, in line with official data."
Demand for services rose at the slowest pace in 14 months but remained sturdy. It was supported by international demand that was the strongest in five months.
The future activity sub-index eased to a three-month low but the decline was slight and companies hired new employees at one of the quickest rates since the survey began in December 2005.
Inflationary pressures increased, as both input costs and prices charged increased at a strong rate.
However, retail inflation in India eased to a four-month low in December, increasing the chances of easier monetary policy. The Reserve Bank of India, NSE:BOI is widely expected to cut its key repo rate on Feb. 7, according to a Reuters poll taken last week.
Slower services growth overshadowed a six-month high pace of expansion in the manufacturing sector and dragged the overall Composite PMI down to 57.7 last month from 59.2 in December.
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