India's services sector concluded 2024 on a positive note, driven by sustained demand, strong hiring, and a reduction in inflationary pressures. The HSBC India Services PMI, which measures sector activity, increased to 59.3 in December, reflecting expansion for over three years. This surge in the services sector was fueled by healthy global demand and a rise in business confidence, which led to increased hiring and a drop in input prices.

According to the survey, India’s services sector ended the year strongly, with activity reaching a four-month peak in December. The growth was supported by ongoing demand, robust job creation, and a cooling of inflationary concerns.

The HSBC India Services Purchasing Managers' Index (PMI), compiled by S&P Global, climbed to 59.3 in December, up from 58.4 in November. Although it was slightly below the initial estimate of 60.8, it marked the highest level since August.

The services sector has maintained growth for over three years, with a reading above 50 indicating expansion. The sub-index for new business, a key indicator of demand, rose sharply, reflecting the highest increase in four months, underpinned by strong global demand.

The overall confidence in the business outlook remained strong, bolstered by high demand and expanded capacities. Business optimism was steady, though slightly lower than the six-month peak recorded in November.

Ines Lam, an economist at HSBC, remarked that indicators like new business and future activity suggest that the positive momentum is likely to continue in the near future.

Rising business confidence contributed to strong hiring, with companies adding workers at one of the fastest rates since the survey's inception in 2005. However, the pace of hiring slowed slightly from the 19-year high seen in November.

Inflationary pressures eased as both input prices and the prices charged by service providers declined. Input prices dropped from November’s 15-month high, though they remained elevated as companies faced rising costs for food, labor, and materials. Service providers passed on some of these additional costs to clients but at a slower pace compared to November’s near 12-year high.

Lam added that the reduction in input price inflation contributed to positive business sentiment, noting that the strength of the services PMI stood in contrast to signs of a slowdown in the manufacturing sector.

The robust performance in services helped counterbalance a decline in manufacturing growth, pushing the overall Composite PMI up to 59.2 in December, from 58.6 in November.