Robust demand propels India's services sector growth in February, PMI shows

By Shaloo Shrivastava

BENGALURU (Reuters) - Growth in India's services sector accelerated in February, supported by robust demand and a firm business outlook that led to a substantial increase in hiring, a survey showed.

Asia's third-largest economy expanded 6.2% year-over-year last quarter, lifted by government and consumer spending. The government expects India to grow 6.5% for the full financial year on expectations urban consumption will improve after weakening due to feeble job and income growth.

HSBC's final India services Purchasing Managers' Index, compiled by S&P Global, rose to 59.0 in February from January's 26-month low of 56.5 but was lower than a preliminary estimate of 61.1.

It has remained above the 50-mark separating expansion from contraction since mid-2021.

"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," noted Pranjul Bhandari, chief India economist at HSBC.

Overall demand for services picked up in February, recovering from January's 14-month low, while growth in foreign orders reached its highest in six months.

Services companies remained optimistic about the business outlook for the upcoming 12-months. The future activity sub-index, gauging sentiment, stayed firm despite falling to a six-month low.

To meet rising demand, companies hired additional staff leading to a strong expansion in employment.

The rate of cost price inflation slipped to a four-month low. Despite that, firms passed on some of the extra burden to customers leading to a higher increase in charge inflation last month.

Inflation in India has mostly remained within the Reserve Bank of India's (RBI) target range of 2-6%, prompting the central bank to cut its key repo rate in February. The RBI lowered the interest rate to 6.25% from 6.50% and is expected to ease further to boost the economy.

The substantial rise in services growth offset a 14-month low expansion rate in manufacturing, driving the overall Composite PMI to rise to 58.8 last month from 57.7 in January.

(Reporting by Shaloo Shrivastava; Editing by Kim Coghill)