India's services sector grows faster in February amid rising demand

India's services sector expanded at a stronger pace in February, driven by rising domestic and international demand, leading to increased new orders, higher employment, and robust business activity. However, while cost pressures persisted, inflation rates eased to a four-month low, according to HSBC India Services PMI.

This growth was well above the long-run average, supported by higher productivity, strong demand, and an increase in new business orders.

New orders in February grew at a faster pace as compared to January, with improved international demand. Service providers reported stronger exports from clients across Africa, Asia, Europe, the Americas, and the Middle East, meeting the rising demand and easing capacity pressures.

Services firms continued hiring at one of the fastest rates since data collection began in December 2005. Both full-time and part-time staff were recruited, showing the sector's confidence in sustained growth.

Despite rising hiring costs and higher expenses on food, materials, and packaging, overall cost inflation dropped to a four-month low, aligning with historical trends.

The rate of increase in selling prices for goods and services was the highest in three months, as businesses passed additional costs onto customers.

The HSBC India Composite Output Index, which measures both manufacturing and services, rose from 57.7 in January to 58.8 in February, reflecting stronger private sector growth. However, while the service sector drove this acceleration, manufacturing growth slowed down.

The private sector also saw a faster rise in employment, with payroll expansion remaining strong compared to the previous month's record growth.

However, backlogs of work continued to rise, suggesting that despite hiring efforts, demand remained higher than companies' processing capacities. New export business index, played a major role in driving output growth for India's services sector."

Pranjul Bhandari, Chief India Economist at HSBC, said, "India's services business activity index rose to 59.0 in February 2025, up considerably from January's 26-month low of 56.5. Global demand, which grew at its fastest pace in six months according to the new export business index, played a major role in driving output growth for India's services sector."

Bhandari added, "Meanwhile, job creation and charge inflation remained strong during February. Looking ahead, business sentiment remains broadly positive, but did slightly slip last month to its lowest level since August 2024."

Advertising, improved customer relations, and efficiency gains kept business confidence broadly positive, with about one-quarter of firms expecting growth over the next year. However, sentiment dipped to a six-month low due to concerns over cost pressures and future demand.

Among the four key service industry segments, Consumer Services saw the highest cost pressures, while Transport, Information & Communication firms recorded the strongest rise in selling prices. (ANI)