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India PMI Data: Growth in India's service sector slowed to a four-year low in July. Driven by weak domestic demand, the index fell to 53.1—its lowest level since February 2022.

India PMI Data: India's service sector momentum slowed in July. During this period, the HSBC Flash Services PMI dropped to 53.1, the lowest level since February 2022. Rising inflation and increased input costs are major factors behind this decline.

However, the fact that the index remains above 50 indicates that India's service economy is still growing, albeit at a much slower pace. The July figures are significant due to the sharp decline observed; the Services PMI stood at 59.8 in May, bolstered by e-commerce, entertainment, information technology, and strong domestic demand. It has fallen by 6.7 points in just two months.

Why is this important?

The Services Purchasing Managers' Index (Services PMI) is a key indicator of the economy's health. It is crucial because the service sector contributes more than half of India's total GDP. This sector encompasses a wide range of businesses—from IT and banking to restaurants, travel, and transport—employing millions of people. A prolonged slowdown could impact jobs, personal incomes, and consumer spending.

Why did the PMI drop in July?

Several factors contributed to the decline in the Services PMI in July, including inflation, rising input costs, sluggish domestic demand, and geopolitical tensions. These challenges led to difficulties for companies, such as order cancellations and supply chain disruptions. Rising costs—specifically for fuel, labor, raw materials, and transport—are also likely major contributors to this decline. However, export orders in the private sector increased, companies continued hiring, and the overall outlook remained positive.

According to a Moneycontrol report, Lavanya Venkateswaran, Senior ASEAN and India Economist at OCBC, stated that nothing definitive could be concluded based on the preliminary results. She noted, "The Services PMI reading of 53.1 remains above the 50 mark. The situation is mixed, with rising price pressures playing a significant role in dampening sentiment, even amidst strong demand."