In October, India's services sector showed renewed strength, with growth accelerating after a temporary lull in September. Supported by increased consumer demand, particularly within the domestic market, the sector not only saw a boost in business activity but also ramped up hiring at the sharpest pace in over two years. The uptick is a positive sign for Asia's third-largest economy as it enters the final quarter of 2024, aligning with forecasts for robust seven per cent growth, according to a Reuters poll.

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Data from the HSBC India Services Purchasing Managers' Index (PMI), compiled by S&P Global, registered a rise to 58.5 in October, up from 57.7 in September. This consistent expansion — the index’s 39th consecutive month above the 50-mark threshold indicating growth — points to sustained momentum in the services sector, which contributes approximately 55 per cent to India's GDP.

Increased Demand and Exports Fuel Growth

The demand surge spanned both domestic and international markets. Businesses reported a significant uptick in new orders, with exports to regions like Africa, Asia, the Americas, the Middle East, and Britain playing a key role. This re-energized demand led to a marked rise in the new business sub-index, signifying resilience and adaptability within India’s service providers. "In October, the Indian services sector experienced strong expansions in output and consumer demand, as well as job creation," said Pranjul Bhandari, HSBC’s Chief India Economist.

The economic upswing, however, comes with some inflationary pressure. Service providers, in response to heightened input costs for essentials such as food, labour, and transportation, raised prices to manage expenses. Cost pressures hit a three-month high, with prices of eggs, chicken, meat, vegetables, and other staples spiking. This inflationary trend could impact consumer spending and might prompt the Reserve Bank of India (RBI) to maintain higher interest rates to curb inflation risks. 

With inflation reaching a nine-month high of 5.49 per cent in September, market analysts predict that the RBI may hold off on interest rate cuts, though a minority of economists polled by Reuters anticipate a 25-basis-point reduction to 6.25 per cent in the coming month. India’s monetary policy stance remains cautiously calibrated to balance growth with inflation control.

In tandem with the services boom, India's manufacturing sector also showed strength. The manufacturing PMI reported earlier in the week, reached 57.5, up from September’s 57.1. Together, the robust performance across manufacturing and services propelled the Composite PMI to 59.1 in October, up from 58.3 in September.