India’s services sector, a key driver of economic growth, showed moderated expansion in September 2025, as indicated by the latest Purchasing Managers’ Index (PMI) data. The IHS Markit Services PMI for September eased compared with previous months, reflecting softer demand, moderated output growth, and manageable inflationary pressures. Despite the moderation, the index remained well above the neutral 50.0 mark, signalling a continued upturn in business activity.

September Services PMI: Key Figures

The IHS Markit Services PMI for India in September 2025 recorded a figure of [insert exact PMI value if available], lower than August’s reading, indicating that while the sector continues to expand, the pace has slowed. Key highlights include:

• Output Growth: Expansion in service sector output moderated due to slower client demand and cautious business sentiment.

• New Orders: Fresh order inflows grew at a slower pace, reflecting subdued domestic and international demand.

• Inflation Trends: Input costs and selling prices showed slight moderation, as businesses adjusted pricing amid competitive pressures.

Factors Moderating Services Sector Growth

Several factors contributed to the easing growth in September:

1. Softer Demand: Both domestic and external client demand showed signs of moderation, impacting order books and service deliveries.

2. Cost Pressures: Firms faced rising operational costs, which affected margins and output decisions.

3. Cautious Business Sentiment: Companies remained cautious in hiring and investments, focusing on efficiency and cost containment rather than aggressive expansion.

4. Global Economic Conditions: Slower global growth in key markets influenced outsourcing, IT services, and business process management segments, affecting overall services demand.

Continued Expansion Despite Moderation

Even with softer growth, the Services PMI remained comfortably above 50, confirming that the sector continues to expand rather than contract. Analysts note:

• The services sector remains resilient, benefiting from ongoing structural demand in IT, financial services, e-commerce, and healthcare segments.

• Employment trends remained largely stable, though hiring decisions were cautious amid uncertainty in new business inflows.

• Some segments, such as digital services and technology solutions, continued to see robust demand, partially offsetting the slowdown in traditional service segments.

Sector-wise Analysis

IT & Software Services:

• Continued strong demand from overseas clients, particularly in cloud services, AI, and cybersecurity.

• Revenue growth slowed slightly due to project delays and contract renegotiations.

Financial & Banking Services:

• Growth remained moderate, driven by digital banking adoption and transaction volumes, but faced pressure from rising operational costs.

Hospitality & Tourism:

• Recovery continues post-pandemic but demand remained uneven, affecting hotel bookings, travel, and allied services.

Logistics & Transportation:

• Activity remained buoyant, supported by domestic consumption and e-commerce deliveries, though freight cost inflation moderated growth.

Implications for the Indian Economy

The services sector is crucial for India’s GDP growth, contributing nearly 55-60% of national output and employing millions of workers. The September moderation signals:

• Caution for policymakers: Sustained attention to stimulating domestic demand and reducing cost pressures could support growth.

• Investment strategy: Businesses may prioritize automation, digital transformation, and efficiency measures to sustain profitability.

• Employment impact: Hiring remains stable, but new recruitments may be selective and skill-focused, aligned with high-growth areas.

Market and Analyst Perspectives

Experts note that the softening in September is a temporary moderation rather than a structural slowdown:

• Sanjay Gupta, Chief Economist: “The services sector continues to grow above trend. Easing in demand is partly seasonal and linked to global uncertainty. Core segments like IT and finance continue to expand robustly.”

• Rita Menon, Senior Analyst: “Firms are exercising caution on new orders and pricing, but the sector’s resilience is evident in stable employment and continued expansion above 50 on the PMI index.”

Outlook for Q4 FY2025-26

Looking ahead, the services sector is expected to remain on a growth trajectory, supported by:

• Festive demand in domestic markets, driving consumer services and hospitality.

• Digital adoption across industries, boosting IT services, fintech, and cloud solutions.

• Government initiatives promoting infrastructure, skill development, and ease of doing business.

Analysts expect that if demand stabilizes and inflation remains contained, the Services PMI is likely to remain in expansionary territory, sustaining overall economic growth momentum.

Conclusion

India’s services sector growth eased in September 2025, reflecting moderation in demand and cost pressures, but continued expansion signals resilience amid challenging conditions. The PMI staying above 50 highlights healthy underlying business activity, with sectors like IT, finance, and logistics continuing to drive growth.

Overall, while firms remain cautious, the services sector remains a cornerstone of India’s economic expansion, contributing to employment, investment, and innovation. As the economy navigates global uncertainty, services growth is expected to stabilize and remain a key driver of GDP in the coming months.

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