Survey data indicated that while activity continued to expand, the momentum seen earlier in the year showed signs of moderation as 2026 began.

The Services Purchasing Managers’ Index remained firmly in expansionary territory, signaling resilience, but the decline highlighted emerging headwinds.

A key factor behind the slowdown was weaker growth in new business, which recorded its slowest pace in almost a year.

Service providers reported that although client interest remained positive, competitive pressures intensified across several segments.

Companies noted increasing competition from alternative service providers offering lower-cost solutions, limiting the pace of new order inflows.

The employment landscape also softened, marking a notable shift after more than three years of continuous hiring expansion.

In December, firms largely froze recruitment, with a marginal reduction in staffing levels reported across the sector.

An overwhelming majority of surveyed firms chose to maintain existing workforce strength rather than expand payrolls.

This pause in hiring reflects a more cautious outlook as companies reassess demand conditions and cost structures.

Business sentiment regarding future activity weakened for the third straight month, reaching its lowest level in over three years.

Despite the dip, optimism has not disappeared entirely, with firms still expecting growth, albeit at a more measured pace.

External demand offered a positive counterbalance, as new export orders strengthened after slowing in previous months.

This uptick suggests that global demand for Indian services remains supportive, particularly in technology and business services.

On the cost side, input price pressures increased moderately compared to November but stayed below long-term averages.

Firms cited higher operational and material costs, though these increases were not considered disruptive.

Output price inflation remained muted, with only a small fraction of companies raising their service fees.

This restrained pricing environment reflects intense competition and a desire to protect market share.

Low inflationary pressure may benefit consumers and clients by keeping service costs stable in the near term.

Economists suggest that manageable cost increases could help firms remain competitive and support gradual demand recovery.

The broader economic picture mirrored this trend, with combined services and manufacturing activity also easing.

Manufacturing growth slowed to its weakest pace in two years, contributing to a softer overall business activity reading.

Nevertheless, the composite index remained well above contraction levels, underlining continued economic expansion.

India’s services sector remains a critical pillar of the economy, accounting for a significant share of output and employment.

Even with the slowdown, activity levels remain historically strong compared to global peers.

Analysts caution that the moderation may reflect a normalization after prolonged post-pandemic growth rather than a sharp downturn.

Policy stability, steady domestic consumption, and improving global conditions could help support services growth ahead.

Export-oriented services, in particular, may benefit from stronger overseas demand as global markets stabilize.

The coming months will be crucial in determining whether December’s slowdown is temporary or the start of a broader trend.

For now, the data points to a resilient sector navigating a phase of adjustment rather than contraction.