India’s services sector delivered its strongest performance in 15 years during August 2025, marking another milestone in the country’s economic growth trajectory. According to the HSBC India Services Purchasing Managers’ Index (PMI) compiled by S&P Global, the index rose sharply to 62.9 in August from 60.5 in July, signaling the sector’s fastest pace of expansion since mid-2010.

This marks the third consecutive month that the PMI stayed above the 60-point threshold, a level that indicates robust expansion in business activity. The services sector, which accounts for a major share of India’s GDP and employment, has now recorded an unbroken run of 49 consecutive months above the neutral 50 mark, reinforcing its role as the backbone of India’s economy.

Key Drivers of Growth

The PMI survey revealed that the upturn was driven by a combination of factors:

1. Buoyant Demand – Domestic consumption remained strong, with businesses across segments citing surging new orders.

2. International Sales – Firms reported a sharp increase in export orders, underlining the global competitiveness of India’s services offerings.

3. Efficiency Gains – Service providers also highlighted process improvements and digital adoption as drivers of efficiency, helping sustain higher output levels.

Employment Trends

Hiring in the services sector continued during August, though at a slower pace compared to July. Companies attributed this moderation to productivity gains and efficient management of existing resources. While employment creation remained positive, firms appeared cautious about adding too many workers amid rising costs.

Rising Costs and Price Pass-Through

One of the significant takeaways from the survey was the rise in operating expenses, particularly in the form of labour and input costs. Interestingly, buoyant demand allowed companies to pass on these costs to clients, resulting in service charges rising at their fastest pace in more than 13 years.

This pricing power highlights the strength of demand and reflects the sector’s resilience in maintaining profitability despite inflationary pressures.

Composite PMI Reflects Broader Economic Momentum

India’s services sector strength complemented the upbeat momentum in manufacturing, which registered its fastest expansion in nearly 18 years in August. The combined effect pushed the Composite PMI to 63.2, the highest in 17 years, underscoring synchronized growth across sectors.

Such a high composite PMI points to broad-based economic expansion, extending beyond services into manufacturing, thereby creating a multiplier effect on employment, investments, and exports.

Macroeconomic Context

The PMI figures come just days after the National Statistics Office (NSO) reported that India’s GDP grew at 7.8% in Q1 FY26, consolidating the country’s status as the world’s fastest-growing major economy.

This growth has been fueled by a combination of:

• Strong domestic consumption from a rising middle class.

• Export competitiveness, especially in IT, business process management, financial services, and consulting.

• Government initiatives such as Digital India, PLI schemes, and reforms in GST and taxation, which have bolstered both manufacturing and services.

Sectoral Insights

1. Information Technology and Business Process Services – Continued to remain the flag-bearer of exports, contributing significantly to the surge in international orders.

2. Financial and Professional Services – Saw strong demand as businesses expanded their operations and sought consulting and compliance support.

3. Tourism, Hospitality, and Retail – Benefited from rising disposable incomes and consumer confidence, particularly during the pre-festive season buildup.

4. Healthcare and Education Services – Recorded steady growth due to structural demand and increased adoption of digital delivery models.

Inflationary Concerns

While the services PMI highlights strong expansion, it also raises questions on inflationary pressures. Higher service charges could feed into consumer price inflation, prompting close monitoring by the Reserve Bank of India (RBI).

However, economists note that inflationary risks are balanced by strong growth, and the RBI’s policy stance may continue to focus on supporting economic expansion while keeping inflation under check.

Global Perspective

Globally, services sectors have faced challenges due to slowing demand in advanced economies. However, India’s contrasting growth story showcases its relative strength as a demand-driven, resilient economy. With rising global interest in India as an investment hub and outsourcing destination, the services boom is expected to sustain in the medium term.

Conclusion

The 15-year high in India’s services PMI is not just a statistical milestone; it is a reflection of the structural strength of the Indian economy. Supported by domestic demand, export competitiveness, and policy reforms, India’s services sector continues to power economic expansion.

Combined with manufacturing momentum, the record Composite PMI of 63.2 signals that India is entering a phase of broad-based, sustained growth, further consolidating its position as the fastest-growing major economy globally.

As the sector adapts to rising costs through efficiency gains and pricing strategies, the outlook for India’s services industry remains highly positive. The coming quarters are expected to see continued expansion, further employment opportunities, and greater contributions to GDP, keeping India firmly on its high-growth trajectory.

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