India’s Services Growth Slows to 14-Month Low in March as Cost Pressures Rise Amid West Asia Conflict

India’s services sector growth slowed to a 14-month low in March, even as inflationary pressures intensified, according to the latest HSBC India Services PMI data compiled by S&P Global.

The Services PMI Business Activity Index fell to 57.5 in March from 58.1 in February, indicating continued expansion but at a slower pace. The latest reading marks the weakest growth in activity since early 2025.

The moderation in activity was linked to softer growth in domestic demand, with new business increasing at the slowest rate since January 2025. Survey respondents cited the impact of the ongoing conflict in West Asia on market conditions and tourism demand.

In contrast, export demand remained strong. New international orders rose at one of the fastest rates on record, supported by demand from regions including Asia, Europe, the Americas and West Asia.

Inflationary pressures strengthened during the month. Input costs rose at the fastest pace since mid-2022, driven by higher prices for food items, fuel, transport and labour. Companies increased selling prices at a quicker pace, though part of the cost burden was absorbed, indicating pressure on margins

At the broader level, the Composite PMI Output Index declined to 57.0 in March from 58.9 in February, signalling the slowest expansion in private sector activity in nearly three-and-a-half years.

Despite the slowdown, firms continued to hire, with employment growth reaching its strongest pace since mid-2025. Business confidence also improved, supported by expectations of better demand and marketing activity.

"India’s services sector stayed in expansion in March, but growth momentum eased for a second consecutive month. Demand remained resilient, led by new export orders, which rose to the greatest extent since mid-2024," said Pranjul Bhandari, Chief India Economist at HSBC.

"As such, service providers’ expectations for future activity remained positive. However, input cost inflation accelerated to its fastest pace since 2022, indicating that higher fuel, transport and logistics costs are feeding into services," she added.

Meanwhile, the conflict in West Asia entered its second month last week, with no signs of a ceasefire anytime soon. US President Donald Trump is pressing Iran to open the Strait of Hormuz but Tehran rejected his ultimatum.