Services vs Manufacturing

Post-pandemic, employment in agriculture and construction has risen. However, these sectors remain dominated by “informal, casual and self-employed workers,” says Deloitte. Manufacturing, also encompassing mining, quarrying, electricity and water supply, saw a rise in job creation, bolstered by capital expenditure and infrastructure initiatives, with workforce participation climbing from 23.7% in FY20 to 24.7% in FY24. Meanwhile, jobs in the services sector peaked at 32.3% in FY19, easing to 29.7% in FY24.

The latest HSBC Flash India Composite Output Index survey captures this momentum. The index, which measures manufacturing and services output, was at 58.6 in October, up from 58.3 in September, a major improvement from its long-term average of 54.7. The survey shows a quicker increase in factory production and services activity. “New and export orders expanded at faster rates, providing a good omen for industrial production for the remaining months of 2024,” says HSBC chief India economist Pranjul Bhandari. Yet, manufacturers continue to face margin pressure due to high input prices. “They are trying to pass on higher costs to downstream consumers by raising output prices,” says Bhandari. The HSBC India manufacturing purchasing managers index (PMI) recovered from September’s eight-month low of 56.5 to 57.4 in October. This reflected improved conditions across new orders, output, jobs, delivery times and stocks. Indian businesses reported a sharp increase in new orders in October 2024.

Manufacturing did better than services in output and sales, yet services showed “stronger” hiring (57.9). This was a breather from September when the services PMI touched a 10-month low and fell below 60 for the first time in 2024 — the HSBC India Services PMI was at 57.7 in September, from 60.9 in August, 60.3 in July and 50.5 in June. GlobalData senior economist Bindi Patel says “weak export demand and high input costs” have slowed growth in the services sector. Aditi Gupta, an economist at Bank of Baroda, echoes this view. She attributes the slowdown to weak external demand and reduced discretionary spending by large clients, which has impacted export orders. Gupta says despite these challenges, September’s services PMI grew for the 38th straight month. Hiring was more pronounced in services in October. The increase in employment was “sharp and quickest in 18-and-a-half years”. Notably, IT hiring picked up pace in Q2 FY25 on pick-up in demand, with top IT services majors Tata Consultancy Services, Infosys, and Wipro adding 8,380 employees collectively. India’s IT services companies plan to recruit around 90,000 freshers this financial year. Patel adds the long-term services growth “continues to remain positive, along with strong employment growth.” India’s services sector is the largest contributor to its GDP. It drives growth in industries like IT, finance and telecommunications.

PMI Growth

India Inc.’s challenge: Creating quality jobs amid informal work dominance