Middle East Conflict Rattles India’s Services Sector; Growth Slumps, Domestic Demand Fades In March
India’s services sector expanded at its weakest pace in 14 months in March as the ongoing Middle East war stifled domestic demand and tourism. While overseas orders approached record highs, surging input costs hit their most intense levels since mid-2022, according to a survey released on Monday.
- Republic Business
- 2 min read
Growth in India’s dominant services industry cooled in March, with the HSBC India Services Purchasing Managers' Index, which is compiled by S&P Global, fell to 57.5 from February’s 58.1. Although the figure remained above the 50-mark separating growth from contraction, it represents the slowest expansion since early 2025.
Survey respondents highlighted that "difficult market dynamics" and the geopolitical friction in the Middle East have begun to constrain business activity, particularly in the tourism and hospitality segments. New business rose at its slowest pace in over a year.
However, the external sector remained a bright spot. Growth in foreign orders climbed to the second-highest level since the sub-index was introduced in 2014, surpassed only by June 2024.
Cost Pressures Hit 45-Month High
There is a spike in operating expenses, with input costs rising at the fastest pace in nearly four years. Services firms raised prices charged to clients at the quickest rate in seven months. However, they were unable to pass on the full burden, absorbing a significant portion of the inflation. This resulted in the widest margin between cost and output inflation in nearly three years.
Advertisement
Despite the cooling activity, employment expanded for the third consecutive month, thus marking the strongest hiring pace since June 2025. Business confidence surged to its highest level in nearly 12 years, as firms remain optimistic about a recovery in market conditions and long-term demand.
The slowdown in services and manufacturing growth hitting a near-four-year low, dragged the HSBC India Composite PMI Output Index down to 57.0 in March from 58.9. This marks the weakest overall expansion for the Indian economy in nearly three-and-a-half years.