Strong India services growth dipped slightly in January

By Anant Chandak

BENGALURU (Reuters) - Robust growth in India's services industry eased last month after touching a six-month high in December, with softening orders spurring caution in companies' business outlooks for the year, a private business survey showed on Friday.

The South Asian nation's economy is expected to grow 6.0% to 6.8% next fiscal year, the government said this week, slower than the 7.0% growth projected for the current year amid faltering global demand.

But Finance Minister Nirmala Sitharaman said in her budget speech on Wednesday that despite challenges the Indian economy was "heading towards a bright future".

The S&P Global India services Purchasing Managers' Index (PMI) fell to 57.2 in January from 58.5 in December, missing expectations in a Reuters poll for 58.1 but above the 50-mark separating growth from contraction for an 18th straight month.

"As seen earlier in the week from the manufacturing PMI results, growth across the service sector lost some momentum at the start of the year," noted Pollyanna De Lima, economics associate director at S&P Global Market Intelligence.

"Yet, the survey showed us that service providers received high amounts of new business which helped keep the overall rate of growth historically prominent. Demand resilience in turn meant that output also continued to expand at a generally strong pace."

She also noted that after re-accelerating in December, input cost inflation in the service sector retreated to a two-year low in January, aiding a slower and only moderate upturn in selling prices.

Prices charged rose at the slowest pace since March 2022. Firms said demand resilience enabled them to pass on additional cost burdens to clients, though some refrained from hiking their fees to boost sales.

This was also seen in the country's annual retail inflation rate, which fell to 5.72% in December from 5.88% in the previous month.

However, the new export business sub-index contracted for the first time since October after touching an over three-year high last month.

The business outlook also took a hit as the overall level of confidence slipped to a six-month low in January, with 80% of firms forecasting no change in output levels in the year ahead.

"The latest results highlighted some caution among service providers, partly evidenced from the vast majority of firms predicting no change in output from present levels," added De Lima.

"This somewhat subdued level of confidence towards the outlook appeared to have stymied job creation in January."

Despite being in expansionary territory for an eighth month in a row, the employment index was only just above breakeven and at a level last seen in July.

The lower readings for manufacturing and services sectors meant the composite index fell to 57.5 compared with the previous month's near 11-year high of 59.4.

That may weigh on the Reserve Bank of India's decision making. The central bank is expected to make a final interest rate hike in the current cycle of 25 basis points at its meeting next week.

(Reporting by Anant Chandak; Editing by Kim Coghill)