India’s service sector closed the year on a high note, with activity expanding at its fastest pace in three months in December on buoyant demand and an optimistic year-ahead outlook, a private survey showed.

The HSBC India Services PMI survey conducted by S&P Global showed that in a striking turnaround from the slowdown observed in November, a robust pick-up in growth momentum was recorded at the end of the 2023 calendar year.

The seasonally adjusted HSBC India Services PMI Business Activity Index surged from 56.9 to 59.0 in December, signaling a sharp increase in output and the most pronounced since September. This rebound comes after lower readings in October and November, making the quarterly average the lowest since Q4 fiscal year 2022-2023.

India’s services activity index has expanded for 29 straight months and is well above the 50-mark reading which separates growth from contraction.

Key drivers of this impressive output growth include favorable economic conditions and positive demand trends. Anecdotal evidence suggests that not only did new business intakes rise further in December, but they did so to the greatest extent in three months, the report said.

Job creation extended into a nineteenth successive month, with new workers hired on both full- and part-time bases.

The overall degree of business optimism strengthened, and services firms in India expect the strong demand momentum to carry forward into 2024. This positive outlook for output is underpinned by advertising efforts and better customer relationships, the report said.

This growth was supported by both domestic and international sales, with service providers noting increased demand from clients in Australia, Canada, Europe, the Middle East, and South America.

Pranjul Bhandari, Chief India Economist at HSBC, stated, “India’s services sector ended the year on a high note, with an uptick in business activity, led by a three-monthhigh new orders index.”

The report highlighted that the cost pressures receded to their lowest point in nearly three-and-a-half years, there was a quicker and solid upturn in selling charges. This suggests improved corporate margins in December.

“Input costs rose at a slower pace than in November, continuing the softening trend which began in mid-2023. But output prices rose at a faster pace, indicating improved corporate margins in December,” Bhandari said.

The report concludes that the overall economic outlook is encouraging, with India’s private sector activity rising to a greater extent in December, supported by a sharp rate of expansion in the service economy.