India Services Cools
India's Service Sector Expansion Slows to 17-Month Low Amid Weakening Domestic Demand
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Key Points
1
June saw the slowest expansion in new order intake in over two-and-a-half years, signaling softer demand at home.
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External demand remained a bright spot, with overseas orders rising and exports supported by demand from markets including Australia, Belgium, Canada, Germany, Malaysia, Nepal, Oman, Qatar, Singapore, the UAE and the US.
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Inflation pressures cooled further, with input costs at a five-month low and output price inflation moderating to the weakest level since November 2025.
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Manufacturing PMI slowed, with manufacturing activity dipping to 54.2 in June, marking a notable slowdown even as services continued to expand.
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Services employment indicators softened, with the services employment index reaching a six-month low in June, signaling slower hiring momentum.
India's services sector is still growing, but at the slowest pace in 17 months. The HSBC India Services PMI fell to 57.4 in June, down from 59.8 in May, according to Charlotte Observer. Any reading above 50 means growth, but the drop signals a clear cooling of momentum.
The slowdown was driven by softer demand at home. New order intake grew at its weakest pace in over two and a half years. At the same time, hiring slowed and price pressures eased, painting a picture of an economy that is still expanding — but more cautiously than before.
Domestic Demand Hits a Two-and-a-Half-Year Soft Patch
The sharpest sign of trouble came from new business intake. Growth in new orders hit its weakest level in over two and a half years, according to Kansas City Star. That means Indian consumers and businesses pulled back on spending for services in June. The drop was broad-based across private services.
Services employment also weakened. The services jobs index fell to a six-month low in June, as companies slowed hiring in response to softer demand. Firms were cautious about adding staff when new business was not coming in as fast as before, Charlotte Observer reported.
Overseas Orders Stay Strong, Cushioning the Blow
While domestic demand cooled, exports held up well. Overseas orders rose in June, supported by buyers from Australia, Belgium, Canada, Germany, Malaysia, Nepal, Oman, Qatar, Singapore, the UAE, and the US, according to Island Packet. That wide spread of markets helped prevent a steeper fall in overall activity.
External demand acting as a cushion is a key pattern here. Indian services firms were able to keep growing partly because global clients kept buying. This offset the weakness at home and kept the PMI reading firmly above 50.
Inflation Pressures Cool to Multi-Month Lows
One bright spot in June was easing price pressure. Input costs fell to a five-month low. Output price inflation — what companies charge customers — dropped to its weakest level since November 2025, according to Whalesbook. That means services firms are not passing big cost increases on to buyers.
Lower inflation gives the Reserve Bank of India more room to act if needed. It also helps consumers, who face less pressure on their wallets. For now, easing prices are helping sustain the expansion even as demand growth slows.
Manufacturing Also Slows, Raising Broader Economic Questions
Services were not the only sector cooling off. India's manufacturing PMI dropped to 54.2 in June, a notable slowdown, according to Sahi. The Composite PMI — which combines both services and manufacturing — slipped to 57.1. That is still strong, but the direction is clearly downward.
Together, the numbers suggest India's economy is shifting gears. Growth is still solid by global standards. But the pace of expansion is easing across both major sectors. Economists will be watching July's data closely to see if this is a brief dip or the start of a longer slowdown, Charlotte Observer noted.
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