Growth in India’s services sector moderated in December

The index has now remained above the 50-mark, which separates growth from contraction, for more than four years. “While India’s service sector continued to perform well in December, the retreat in several survey indicators as 2025 ended may suggest a moderation in growth heading into the new year,” said Pollyanna De Lima, economics associate director at S&P Global Market Intelligence.

New business inflows continued to rise at an above-trend pace in December but expanded at the slowest rate in 11 months. Firms attributed growth in orders and output to competitive pricing, demand buoyancy and positive client interest, though heightened competition and cheaper alternative service providers constrained expansion.

Export demand strengthened during the month, bucking the broader slowdown in activity. New export orders rose at a marked pace and faster than in November, supported by gains from Asia, North America, the Middle East and the UK. “While recent rupee weakness may have driven import costs higher, it likely made exports more competitive. Notably, against the wider trend of slowing growth, services exports rose to a greater extent in December,” said De Lima.

Price pressures edged up in December but remained relatively benign. Input costs increased at a quicker pace than in November, driven by higher expenses related to building materials, chemicals, medical supplies, salaries and office maintenance, though inflation was among the softest seen in over five years. Selling prices also rose slightly, recording one of the weakest increases in around two years, with fewer than 3% of firms hiking prices.

Employment growth stalled in the services sector in December, ending a hiring trend that began in June 2022. Most firms reported no change in staffing levels, citing stable workloads and limited pressure on operating capacity, with outstanding business volumes broadly unchanged from recent months.

Business sentiment softened further, with confidence slipping to its lowest level in nearly three-and-a-half years amid concerns over market uncertainty and exchange rate movements, though firms remained optimistic about growth prospects in 2026.

Meanwhile, the HSBC India Composite PMI Output Index, which combines manufacturing and services activity, eased to 57.8 in December from 59.7 in November, indicating the weakest pace of private-sector expansion since January 2025. Despite the slowdown, the index remained well above its long-run average of 55, indicating continued expansion in overall economic activity.