India’s Services Sector Records 10-Month High Growth in June 2025

India’s services sector, a critical driver of its economy, saw its fastest expansion in 10 months during June 2025, according to the latest Purchasing Managers’ Index (PMI) data. This uptick is credited to a sharp increase in new business orders, underscoring resilient domestic demand despite global uncertainties.

PMI surveys, widely used as leading indicators, reflect the health of private sector activity by tracking variables like new orders, employment, output, and business expectations. A PMI reading above 50 indicates expansion, while below 50 signals contraction.

The June PMI for India’s services sector surged to its highest level since August 2024, indicating robust momentum in economic activity. This strong upturn comes after months of solid but slightly more moderate growth earlier in the year, providing a positive signal for India’s broader economic outlook.

The Role of New Business in Driving Growth

A key driver of the June surge was a marked increase in new business orders. Businesses across service industries—from IT and financial services to hospitality and retail—reported strong client demand, both domestic and (to a smaller extent) from overseas markets.

Strong demand conditions encourage firms to expand capacity, hire more workers, and invest in technology and infrastructure. This virtuous cycle supports broader economic growth.

For June 2025, many firms noted:

• Higher domestic consumption amid steady economic sentiment.

• Rising demand from corporate clients investing in services.

• A partial rebound in travel and hospitality after seasonal dips.

Such trends reinforce India’s position as one of the world’s fastest-growing major economies, with services making up over 55% of GDP.

Employment Growth: 37 Consecutive Months of Gains

The ongoing expansion of the services sector translated directly into job creation. June marked the 37th straight month of employment growth in services—a clear testament to the sector’s resilience.

While the rate of job growth slowed slightly compared to May’s record levels, it still outpaced its long-run average. This indicates firms remain confident in the medium-term outlook despite pockets of global uncertainty.

Key factors behind this sustained hiring include:

• High new order volumes requiring more staff to deliver services.

• Growth in sectors like IT services, banking, education, healthcare, logistics, and hospitality.

• An evolving demand for skilled roles, especially in technology-driven sub-sectors.

Steady job creation in services is critical for India, which needs to generate millions of new jobs annually for its young, rapidly urbanising population.

Sectoral Trends: IT, Finance, Hospitality, Healthcare

India’s services sector is vast and diverse, covering everything from high-tech IT services to street-level retail.

Information Technology (IT) and Business Process Management (BPM):

• Continue to be engines of growth.

• Benefit from strong global outsourcing demand, digitalisation, and AI adoption.

• Many firms expanding headcount to manage larger client projects.

Financial Services:

• Strong credit demand and digital payment growth drive business.

• Increased hiring in fintech and traditional banking.

Hospitality and Travel:

• Rebounding from seasonal off-peak period.

• Benefiting from domestic tourism demand and returning foreign visitors.

• Hotels, restaurants, and travel agencies boosting hiring.

Healthcare and Education:

• Growing demand for private healthcare services and educational technology.

• Hiring across clinical, administrative, and tech-enabled roles.

These sub-sector dynamics show India’s services expansion is broad-based, not confined to one or two industries.

Business Confidence Remains High

PMI data also revealed sustained business optimism about the coming year, despite mild caution over global headwinds like:

• Geopolitical tensions.

• High interest rates in developed economies.

• Potential volatility in commodity prices.

Most Indian service sector firms remain bullish about demand growth, thanks to:

• India’s large, youthful consumer base.

• Rising disposable incomes.

• Government investments in infrastructure and digital public goods.

• Supportive policy environment for startups and SMEs.

Impact on India’s Economic Growth

The services sector is central to India’s economic model. In 2024–25, India was already one of the fastest-growing major economies, and the June PMI data signals that services will continue to be a strong pillar of overall growth.

Why it matters:

• Services employ over 30% of India’s workforce directly.

• They attract significant foreign investment, especially in IT and financial services.

• They contribute critical tax revenue for states and the Union government.

• They fuel urban development, real estate demand, and retail consumption.

With manufacturing growth also picking up (as seen in other PMI releases), India’s economic momentum appears broad-based, offering policymakers some comfort as they navigate global uncertainties.

Challenges Remain

Despite the upbeat June numbers, the sector faces challenges:

• Global demand uncertainty: IT and BPM services depend on foreign clients who may cut spending if their economies slow.

• Skills gaps: As tech adoption rises, India must upskill millions to keep up with industry needs.

• Regulatory issues: In areas like data privacy, taxation, and labour laws, clarity is needed to keep the sector competitive.

• Urban infrastructure: As service jobs concentrate in cities, strains on housing, transport, and utilities must be addressed.

For India to sustain high growth, these issues need continued policy attention.

Government and Policy Support

Recognising the sector’s importance, the Indian government has:

• Pushed digital public infrastructure (UPI, Aadhaar, DigiLocker) to support service delivery.

• Offered incentives for IT and BPM exports.

• Supported startup ecosystems with easier compliance and funding.

• Invested in urban infrastructure through schemes like Smart Cities and AMRUT.

These measures create an environment where service firms can expand operations and hire more staff.

Comparing Global Trends

India isn’t alone in seeing services growth. Globally:

• The US and Europe have seen mixed services momentum, with high interest rates and inflation dampening consumer spending.

• China has pushed for services-led rebalancing, with mixed results amid real estate troubles.

• Southeast Asia has benefited from outsourcing and tourism recovery.

But India’s domestic demand base gives it a unique advantage. Unlike some export-heavy economies, India’s services sector is buoyed by its own growing middle class, ensuring more stable long-term prospects.

The Road Ahead

Industry experts believe that India’s services sector will remain a key growth driver for the foreseeable future. Continued expansion depends on:

• Investment in skills: Training workers in new technologies, languages, and customer service.

• Urban policy reforms: Building housing, transport, and digital infrastructure for expanding cities.

• Ease of doing business: Reducing red tape, streamlining taxes, and ensuring stable regulations.

• Inclusive growth: Extending opportunities beyond top cities to tier-2 and tier-3 centres.

As firms and policymakers tackle these goals, India’s services sector could not only sustain high growth but become a global powerhouse, delivering value-added services at scale.

Conclusion

The 10-month high growth in India’s services PMI for June 2025 is a clear positive signal for the economy. Driven by a sharp rise in new business orders and steady employment gains, the data confirms strong underlying demand in the world’s most populous nation.

While challenges remain—from global risks to local infrastructure gaps—the sector’s broad-based strength and resilient hiring trends offer hope that India can continue to deliver robust, inclusive economic growth in the years ahead.

Policymakers, businesses, and workers alike will need to collaborate to address structural barriers, enhance skills, and ensure that the benefits of this expansion reach all corners of society.

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