India’s Services Growth Eases in February Amid Rising Costs

India’s services sector expanded at a slower pace in February as new business growth cooled to its weakest level in more than a year and companies grappled with the sharpest rise in costs in two-and-a-half years, according to a monthly survey.

The HSBC India Services Purchasing Managers’ Index, compiled by S&P Global, slipped to 58.1 in February from 58.4 in January. The reading was also below the preliminary estimate of 58.4. A figure above 50 indicates expansion, while a reading below that level signals contraction.

Although the sector remained firmly in growth territory, demand showed signs of moderation. New business increased at the slowest rate since January 2025, with survey respondents citing intensifying competition among service providers. Firms reported stepping up marketing efforts, but competitive pressures limited gains in domestic orders.

International demand offered some support. Overseas sales rose at the fastest pace since August, with companies noting improved appetite for Indian services from foreign clients. The increase in export orders helped offset softer growth at home.

Cost pressures intensified during the month. Service providers reported a sharper rise in operating expenses, driven mainly by higher food prices as well as increased energy and labour costs. The uptick marked the steepest input cost inflation in two-and-a-half years.

India’s first inflation reading under a revised data series showed consumer price growth accelerating to 2.75 percent in January. The figure returned within the Reserve Bank of India’s target range of 2 to 6 percent for the first time in five months. The updated data series reflects shifting consumption patterns, with revised weightings for categories such as food and housing and a new base year of 2024.

Many companies passed a significant share of rising costs on to customers. Output prices increased at the fastest pace in six months as firms sought to protect profit margins.

Despite cost challenges and softer domestic demand, employment in the services sector expanded for a second consecutive month. Hiring accelerated compared with January, as businesses added staff to meet existing workloads and prepare for anticipated growth.

Business sentiment improved notably. Confidence among service providers climbed to its highest level in a year, with firms expecting stronger demand in the months ahead and positive returns from marketing campaigns.

The broader private sector also showed resilience. The composite Purchasing Managers’ Index, which combines services and manufacturing activity, rose to 58.9 in February from 58.4 in January. The increase signaled the fastest pace of overall private sector growth in three months, suggesting that while services momentum eased slightly, the wider economy maintained solid expansion.