India's crucial services sector witnessed a loss of momentum as 2025 drew to a close, with business activity expanding at its slowest pace in eleven months during December. The latest monthly survey data reveals a moderation in growth as new business inflows softened and companies exhibited caution in hiring.
Key Indicators Show a Notable Slowdown
The seasonally adjusted HSBC India Services PMI Business Activity Index declined to 58.0 in December, down from 59.8 in November. This marks the weakest reading since January 2025. It is important to note that any PMI reading above 50 indicates expansion, while a figure below 50 signals contraction. The survey, compiled by S&P Global, showed that while service providers remained in expansion territory, the pace of growth decelerated noticeably for both new business and output.
Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence, commented on the trend, stating, "While India's service sector continued to perform well in December, the retreat in several survey indicators as 2025 ended may suggest a moderation in growth heading into the new year."
Export Strength and Subdued Inflation Offer Silver Linings
Despite the domestic slowdown, external demand provided a significant bright spot. Firms reported a marked improvement in overseas orders, driven by stronger demand from key regions including Asia, North America, the Middle East, and the United Kingdom. New export orders rose at a robust pace during the month.
Furthermore, inflationary pressures remained in check. The survey pointed to only mild increases in both input costs and the prices charged by service providers. De Lima highlighted the positive implications of this trend: "What bodes well for the outlook is the benign inflation environment. If services firms continue to see only mild increases in their expenses, they should be better positioned to compete and limit price hikes, thereby boosting sales and creating more jobs."
Business Confidence Dips Amid Broader Private Sector Slowdown
The survey revealed a growing sense of caution among businesses. Although services companies expressed confidence about a rise in activity in 2026, the overall level of optimism weakened for the third consecutive month. Business sentiment plunged to its lowest point in nearly three-and-a-half years, attributed to growing market uncertainty and concerns over exchange rate volatility.
"Companies did express some anxiety about market uncertainty and exchange rate movements. While recent rupee weakness may have driven import costs higher, it likely made exports more competitive. Notably, against the wider trend of slowing growth, services exports rose to a greater extent in December," added De Lima.
The slowdown was not confined to services alone. The broader private sector also felt the pinch. The HSBC India Composite PMI Output Index, which measures combined activity in manufacturing and services, fell to 57.8 in December from 59.7 in November. This 11-month low reflected slower growth across both sectors. Consequently, hiring activity stalled, with service providers even recording marginal job shedding.
Despite these headwinds, private sector firms maintained an optimistic outlook for future growth prospects. However, the survey confirmed that this overall positive sentiment had slipped to a 41-month low, underscoring the cautious mood prevailing at the end of 2025.
