Aug 11 2025
India

India’s Services Sector Hits an 11-Month High

Image Credit : Reuters
Source Credit : Portfolio Prints

A Surge in Activity

  • The HSBC India Services Purchasing Managers’ Index (PMI), compiled by S&P Global, climbed to 60.5 in July, up from 60.4 in June — marking the fastest expansion since August 2024. Readings above 50 indicate expansion.

  • The minute increase underscores sustained dynamism in the services landscape.

Key Drivers: Exports, New Orders & Domestic Demand

  • International demand played a pivotal role: firms reported surging export orders from Asia, the US, Canada, Europe, and the UAE, delivering the second strongest external sales expansion in a year.

  • Marketing campaigns, client onboarding, and rising domestic demand—particularly in finance and insurance—fuelled new business and output.

Employment: Growth Without Hiring

  • Despite buoyant demand, job creation slowed sharply, with staffing expansion hitting a 15-month low. Less than 2% of service providers added new employees — most reported no change from June.

  • This indicates a cautious stance by employers amid strong order books.

Inflationary Pressures Build

  • Rising costs—particularly in food, freight, and labor—pushed input costs higher. Firms responded by increasing service prices, with output inflation slightly outpacing input cost growth.

  • While the central bank was expected to maintain the repo rate at 5.50% in its August policy review, inflation trends could shape future decisions.

Composite Momentum & Business Outlook

  • The Composite PMI, which includes manufacturing, rose to 61.1, the strongest since April 2024.

  • Firms remain optimistic about future output, citing gains through tech adoption, marketing, efficiency improvements, and digital presence—though forward-looking confidence was still below early-2025 highs.

A Growth Engine Under Pressure

  • The services sector, a pillar of India’s GDP, continues to drive economic momentum through both exports and domestic consumption.

  • Its robust performance—paired with rising manufacturing output—contributes to a powerful composite expansion.

Caution in Hiring Signals Structural Shifts

The slowdown in hiring amidst demand may reflect:

  • A shift toward automation and efficiency.

  • Capacity constraints within firms.

  • Strategic caution by businesses amid global uncertainties.

Inflation on the Radar

Cost pressures in services could:

  • Spill over to consumer inflation.

  • Influence monetary policy, especially if CPI and WPI pick up.

  • Make firms weigh growth versus margin amid rising input costs.

Outlook: Opportunities vs. Challenges

  • Opportunities: Strong external demand, expanding digital services, and cross-sectoral growth within finance and tech-driven segments.


  • Challenges: Managing labor constraints, inflation control, and ensuring future optimism translates into sustained investment and hiring.


Conclusion

July’s PMI data for India’s services sector paints a compelling picture of resilient growth anchored by global demand and domestic strength. However, the slowdown in hiring and burgeoning cost pressures warrant strategic attention from businesses and policymakers alike. As India heads into the second half of 2025, balancing momentum with sustainable policies will be key.
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