India’s services sector grew at its slowest pace in over two years in January, according to the HSBC India Services PMI Business Activity Index published on Wednesday by United States-based financial analytics firm S&P Global.

The seasonally adjusted index, which tracks month-on-month changes in services and manufacturing output, fell to 56.5 in January from 59.3 in December – the lowest since November 2023. A value above 50 indicates expansion, while below 50 signals contraction in economic activity.

The slowdown was driven by weaker sales and output growth.

“Even though the index remained above 50, the services sector lost momentum,” said Pranjul Bhandari, chief India economist at HSBC. “Business activity and new business indices eased to their lowest since November 2022 and November 2023, respectively.”

Bhandari added: “That said, new export business partly countered the downtrend and continued to rebound from a dip in late-2024, in line with official data which showed India’s services exports shining in December and capturing a larger share of global trade.”

In contrast to the trend for total new orders, there had been a quicker increase in international sales, the report said. The report noted that international sales grew at their fastest pace in five months, with gains from clients in Asia, Europe, West Asia and the Americas.

On January 24, the HSBC Flash Composite Purchasing Managers’ Index indicated that India’s private sector activity fell to a 14-month low in January. The flash index had projected a score of 58.9.

“Indian private sector companies started 2025 with a slowdown in growth,” S&P Global had said. “With the rise in new business intakes receding, aggregate output increased at the weakest pace since November 2023.”

The firm surveys about 400 companies each in the manufacturing and services sectors.

While the purchasing managers’ index is published at the beginning of every subsequent month, the flash data is calculated based on about 80% to 90% of the responses received for an early projection of the final numbers.

In an attempt to boost consumption, the Union government in the Budget on Saturday said there would be no income tax payable for those earning up to Rs 12 lakh per annum under the new regime. Finance Minister Nirmala Sitharaman also proposed to change the income tax slabs under the new tax regime.

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This came a day after the government’s annual Economic Survey projected India’s real gross domestic product to grow between 6.3% and 6.8% in the financial year 2025-’26.

This would mean a growth rate below 7% for a second consecutive financial year.

The Economic Survey said that India would need to achieve sustained economic growth of close to 8% for at least a decade to become a developed country by 2047.

The Reserve Bank of India said on December 30 that India’s economy was demonstrating resilience and stability and projected GDP growth at 6.6% in 2024-’25. The central bank said that the growth was aided by a revival in rural consumption, among other factors.

On January 16, the World Bank forecast that India’s economic growth was projected to grow at a rate of 6.7% over the next two financial years.

Also read: Why is India’s middle class so silent about the slowing economy?