India’s services slow, manufacturing surges in January

India’s services sector experienced its slowest growth in over a year in January, with the HSBC India Services PMI falling to 57.9 from December’s 59.2, marking a 14-month low. Despite this slowdown, the PMI remained above its long-term average of 54.7. The private sector began 2025 with subdued growth, as weaker new business intakes led to the slowest aggregate output increase since November 2023. While services lagged, the manufacturing sector showed robust performance, with the HSBC Flash India Manufacturing PMI rising to 58.0 in January from 56.4 in December, marking the best improvement since July 2024.

S&P Global noted that factory orders rose at their fastest pace in six months, while services growth slowed to its weakest since November 2023. This divergence resulted in easing private sector sales growth, given the significant size of India’s service economy. Manufacturing companies benefited from stronger export orders and easing input cost inflation, which contributed to their growth momentum. In contrast, the services sector faced rising domestic cost pressures, with expenses increasing at the highest rate in 18 months.

Exports supported growth across both sectors, with international sales expanding at the fastest rate in six months. Gains were reported across major markets, including the Americas, Asia, and Europe. Job creation reached unprecedented levels since the survey’s inception in December 2005, as both permanent and temporary workers were hired on part- and full-time bases.

Cost pressures intensified at the composite level, driven by contrasting trends. Manufacturing saw inflation retreat to a 10-month low, while service providers faced steep cost escalations. Selling price inflation remained comparable between the two sectors.

Pranjul Bhandari, HSBC’s Chief India Economist, highlighted the strong start of the manufacturing sector, driven by a rebound in output and new orders, while flagging the cooling domestic demand in the services sector as a potential weak spot. However, new export business in services continued its upward momentum, offering some optimism for future growth.