A year-end survey has shown that the Indian economy has stood fairly resilient in the face of headwinds, but the checklist is a mix of hits and misses. The all-important services sector accelerated in November this year on the back of robust domestic demand, thus recovering lost ground from the previous month. However, export growth slipped to an 8-month low in the face of high US tariffs and rising global competition. The India Services Purchasing Managers’ Index, compiled by S&P Global, inched up to 59.8 last month from October’s 58.9. This is well above the neutral mark of 50, which separates expansion from contraction, and reflects sustained resilience. However, the Composite Index, which combines manufacturing and services, eased slightly to 59.7 in November from 60.4 in October, primarily due to a slowdown in manufacturing activity.
The worry is that even though the index remains comfortably above the 50-mark, a decline for three consecutive months suggests India’s economy may be losing momentum. The data indicates despite a rise in company outputs, job growth remained muted. Around 95 percent of the firms surveyed reported no change in payroll numbers, indicating they did not face any pressure on existing capacity and that pending work was on a plateau. Simultaneously, business confidence for the 12 months ahead slipped to its lowest since July 2022, as companies turned cautious in the face of turbulent geopolitics.
The overcautious, risk-averse approach of businesses is probably hurting growth even though the fundamentals seem positive. The sharp uptake of the services sector shows there is strong domestic demand even though the export environment is cloudy. The PMI figures show input price inflation has reached its lowest rate in 5 years since August 2020, except for small increases in electricity, food, and software. This kept selling prices at an 8-month low, and in turn, stoked consumer demand. It is this trend that has encouraged the Reserve Bank to lower lending rates by 25 basis points. The various pointers should not be crimping business confidence; rather, with low inflation and high domestic demand, now is the time to boost investment and capacity in manufacturing, and generating more jobs. Businesses are built on informed risk-taking and it is time the government put its shoulders behind growth-focused entrepreneurship.
