October Insights: India's Service Sector Grows 13% in Employment and 58% in Output The HSBC India Services Business Activity Index rose from 57.7 in September to 58.5 in October, signaling a sharp acceleration in growth well above the long-term average of 54.1

India's service sector experienced a resurgence in October, following a slower period in September. As per the latest HSBC India Services PMI survey, conducted by S&P Global, the sector saw robust output growth, driven by both domestic and international demand. This renewed strength is an encouraging sign for India's broader economy, underscoring the resilience and adaptability of its service industries even amidst inflationary pressures. The HSBC India Services Business Activity Index rose from 57.7 in September to 58.5 in October, signaling a sharp acceleration in growth well above the long-term average of 54.1. This rebound reflects the sector's recovery from September's ten-month low, a downturn that now appears to have been a temporary blip in an otherwise upward trend.

The October surge highlights a stable demand base for Indian services, with pipelines indicating sustained interest from both existing and new customers. Pranjul Bhandari, chief India economist at HSBC, noted, "India's services PMI recovered from its ten-month low in September to reach 58.5 last month. During October, the Indian services sector experienced strong expansions in output and consumer demand, as well as job creation, which achieved a 26-month high."

A significant outcome of this increased activity has been in employment, with firms recruiting at the fastest rate in more than two years. This rise in job creation signals confidence among service providers, who are expanding their workforces to meet growing demand. As per the report, approximately 13 per cent of survey participants reported new hiring in October, an increase from 9 per cent the previous month. This uptick includes both full-time and part-time employment, with firms eager to address capacity pressures that have been building due to rising demand.

Another promising development has been the recovery in export sales across India's service sector. October saw a notable increase in new business from overseas, with particularly strong demand coming from regions including Africa, Asia, the Americas, the Middle East, and the UK. This expansion of international clientele highlights the sector's broadening reach and global appeal, especially in finance, insurance, and technology services. With global economies slowly rebounding, India's service exports are well-positioned to benefit from rising demand, which may help alleviate some of the pressures from domestic inflation.

While these trends indicate overall strength, inflationary pressures are a growing concern. The report noted an increase in input costs during October, largely due to rising wages and higher food costs. Companies have passed a portion of these costs to clients, leading to the highest rate of charge inflation since July. Nonetheless, the general inflation rate for the service sector remains below its long-term average, suggesting that cost pressures are still within manageable limits. Consumer services faced the highest cost pressures, while the finance & insurance sector continued to show the strongest overall performance.

Despite a slight dip in overall business sentiment from September, companies remain largely optimistic about future growth. One-quarter of the surveyed firms forecasted increased output in the year ahead, driven by sustained demand, effective marketing, and interest from new clients. The vast majority, 74 per cent, expect activity levels to remain stable, reflecting confidence in maintaining their current output. Bhandari added, "Although input price inflation is accelerating from higher food and wage costs, the general inflation trajectory remains below the long-run average. Meanwhile, business sentiment receded slightly from September, but the future activity index still indicates broadly positive expectations for the year ahead."

At the composite level, which includes both manufacturing and service sectors, private sector activity reached a three-month high in October. The HSBC India Composite Output Index rose from 58.3 in September to 59.1, indicating accelerated growth across industries. Notably, manufacturing saw a higher rate of increase in new business and output, but the service sector led in job creation, underscoring its critical role in India's employment landscape. Meanwhile, the inflation rate for input costs was comparable across both manufacturing and services, highlighting shared challenges in managing expenses.