India's Services Sector Growth Slows Amid Weaker Demand

Services Sector Growth Eases in June

In June, India's services sector continued its expansion, but the growth rate has slowed down due to diminished domestic demand and a decline in client acquisition. The latest HSBC India Services PMI indicates that while the sector remains in growth territory, the momentum has dropped to its lowest point in nearly 17 months. The seasonally adjusted HSBC India Services PMI Business Activity Index fell to 57.4 in June, down from 59.8 in May. A reading above 50 signifies growth, and although the latest figure shows ongoing expansion, it reflects the slowest growth rate observed in over a year and a half, indicating a more cautious business climate.

This slowdown is primarily attributed to a decline in new business growth. The rate of new order inflows has increased at the slowest pace in more than two and a half years, with many companies reporting weaker domestic demand and less customer interest. Despite this, some service providers experienced positive trends, benefiting from competitive pricing, increased e-commerce activity, higher customer bookings, and a boost in domestic tourism. Conversely, numerous firms cited challenging market conditions and low client demand as significant factors contributing to the slower sales growth.

Pranjul Bhandari, the chief India economist at HSBC, noted, “India’s services PMI remained in expansionary territory but eased to 57.4 in June, the lowest reading in 17 months.” She emphasized that the loss of momentum indicates more challenging market conditions and reduced domestic demand. However, she also pointed out that external demand remained strong, with overseas sales reaching a three-month high.

Exports have continued to support the sector, with new export orders growing at their fastest rate in three months, driven by robust demand from countries such as Australia, Belgium, Canada, Germany, Malaysia, Nepal, Oman, Qatar, Singapore, the UAE, and the United States.

Hiring Stalls as Companies Reassess Workforce

Hiring Pauses As Firms Reassess Workforce Needs

In June, employment growth within the services sector slowed, with many businesses opting to maintain their current workforce levels. Following a period of strong hiring in April and May, firms indicated that their existing staff was adequate to handle current workloads. The survey revealed that outstanding business volumes remained stable, suggesting that companies could manage incoming work without significantly increasing their workforce. The relevant index remained slightly above the neutral mark of 50.

Inflationary pressures have also eased during this period. Input cost inflation reached its lowest level in five months, although companies still faced rising expenses related to electricity, food, fuel, and transportation. Additionally, the rate at which firms raised prices for customers slowed to its lowest since November 2025, remaining below the long-term average. Among various service categories, consumer services continued to experience the highest inflation in both input costs and selling prices, albeit with softer increases compared to the previous month.

Broader Economic Slowdown Observed

Private Sector Momentum Also Eases

The slowdown in the services sector is reflective of a broader economic trend. The HSBC India Composite PMI Output Index, which encompasses both manufacturing and services, dropped to 57.1 in June from 59.3 in May, marking the weakest expansion since March. Growth in output, new orders, and employment has moderated across both sectors. Hiring in the private sector has expanded at its slowest rate thus far in 2026, while both input cost inflation and output price inflation have eased to five- and seven-month lows, respectively.