India's services sector growth has slipped to its lowest level in four years, dragged down by weak domestic demand. The latest data shows the sector's expansion slowed considerably, though a pickup in export orders offered some relief. The slowdown could weigh on the country's overall economic growth, which has already faced headwinds from global uncertainty.
What the data shows
The services purchasing managers' index fell to a four-year low in the latest reading, signaling a sharp deceleration in business activity. Survey respondents pointed to subdued demand from local clients as the primary factor behind the slowdown. New business from within India grew at the weakest pace since the series began tracking the current cycle, while employment growth also softened.
Export orders provide a buffer
Strong demand from overseas markets helped offset some of the domestic weakness. Export orders rose at a solid pace, with firms reporting increased business from clients in Asia, Europe, and the Middle East. This external demand helped keep the overall index above the 50-point mark that separates expansion from contraction, but barely.
Impact on the broader economy
The services sector accounts for more than half of India's gross domestic product, so a sustained slowdown here could drag on GDP growth. The Reserve Bank of India has already cut interest rates this year to stimulate the economy, but the latest data suggests domestic demand remains fragile. Policymakers will be watching upcoming readings closely to see if the weakness spreads to other sectors.
The next set of GDP figures is due in late November, and the RBI's monetary policy committee meets in early December. Both will offer clues on whether the services slowdown is a blip or a deeper trend.
