India balances sluggish economy with growing services and crypto boom

India’s economy is juggling two realities: a sluggish manufacturing sector and booming growth in services and crypto.

November’s numbers are out, and they tell a story of highs and lows that reflect the country’s complex economic situation. Manufacturing slowed, services soared, and crypto continues to dominate despite regulatory crackdowns and heavy taxation.

The manufacturing purchasing managers’ index (PMI) fell slightly to 57.3 from October’s 57.5. In contrast, the services index rose to 59.2 from 58.5, according to preliminary data from HSBC Holdings. Together, they nudged the composite index up to 59.5, a minor increase from 59.1.

A PMI above 50 means growth, below that means contraction. So, while manufacturing softened, the services sector carried the weight, reaching its highest employment index since December 2005, thanks to strong demand and better business conditions.

Manufacturing slows, inflation bites

Even though the manufacturing sector slowed, HSBC’s Chief India Economist, Pranjul Bhandari, said it “managed to outperform expectations.” But rising costs are biting hard.

Manufacturers face higher raw material prices, while food and wages are driving up inflation in the services sector. As a result, private companies raised their prices again in November, passing the cost onto consumers.

Urban spending is slowing, too, adding to the gloom. Economists have adjusted their GDP growth forecasts for the year ending March 2025.

Goldman Sachs now predicts 6.4% growth, a notable downgrade that reflects these challenges. Despite this, the services sector is a bright spot, powered by resilient demand and businesses looking to scale up.

Crypto thrives despite tough rules

India’s crypto scene doesn’t care much for slowdowns. It’s thriving, even under some of the world’s strictest regulations. The country has a 30% tax on crypto gains and a 1% tax on every transaction, known as a tax deducted at source (TDS).

These policies have driven some investors to international exchanges with friendlier rules, but India still leads the world in crypto adoption. It ranks first on the Global Crypto Adoption Index and second in the Central and South Asia region for total crypto value received.

In December 2023, India’s Financial Intelligence Unit (FIU) cracked down on nine offshore exchanges, including Binance, Kraken, and KuCoin, for not complying with anti-money laundering laws.

The FIU asked the Ministry of Electronics and Information Technology (MeitY) to block the URLs of these exchanges for Indian users.

However, this block wasn’t as effective as intended. Users who had already downloaded these apps could still access them, and some platforms remained available for new downloads.

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