India's Service Sector Growth Accelerates in October
India's service sector has entered a growth phase in October, recovering from a 10-month low in September, driven by a significant increase in demand. This marks an encouraging start for the third-largest economy in Asia heading into the fourth quarter of 2024, aligning with forecasts that predict a 7.0% growth for this quarter compared to the previous quarter's 6.8%.
According to government data for the 2023-24 fiscal year, the service sector, which accounts for approximately 55% of India's GDP, saw the HSBC India Services Purchasing Managers' Index (PMI) compiled by S&P Global rise to 58.5 in October from 57.7 in September. This figure not only exceeded the preliminary estimate of 57.9 but also indicated the 39th consecutive month that the index remained above the crucial threshold of 50 that separates expansion from contraction.
HSBC's Chief Economist for India, Pranjul Bhandari, highlighted strong expansions in production, consumer demand, and job creation within the Indian service sector in October. The increase in new business volumes, supported by strengthening exports to various regions including Africa, Asia, America, the Middle East, and Britain, has encouraged service firms to hire at the fastest pace in over two years.
Despite a positive business outlook for the coming year, the index showed a slight decline compared to September. Service providers faced their highest cost pressures in three months due to rising expenses in food items such as eggs, chicken, meat, vegetables, labor, and transportation, prompting them to raise prices. This development heightened concerns regarding inflation, which surged to 5.49% in September, its highest in nine months, potentially affecting consumer spending and leading the Reserve Bank of India (NS:BOI) to maintain high interest rates.
A narrow majority of economists expect the RBI to cut interest rates by 25 basis points to 6.25% next month. The manufacturing PMI, announced on Monday, also showed improvement, rising to 57.5 from the previous month. Along with the performance of the service sector, the overall Composite PMI increased from 58.3 in September to 59.1, indicating strong expansion in the Indian economy.