India’s Services Boom: PMI Soars, Fueling Economic Momentum and Defying Inflation Pressures

India's services sector demonstrated exceptional growth in August 2025, reaching its highest expansion level in 15 years as measured by the HSBC India Services Purchasing Managers' Index (PMI), compiled by S&P Global. The index surged to 62.9 from 60.5 in July, signaling robust demand, increased new orders, and a significant uptick in output, underpinned by lively international and domestic market conditions.

 

Key Highlights of August's Services PMI Performance

 

The PMI reading of 62.9 marks the steepest rate of expansion in over a decade and a half, reflecting historically high business activity.

 

Growth in new orders hit the strongest pace since June 2010, fueled considerably by export demand across key regions like Asia, Europe, the Middle East, and the US.

 

The Composite PMI Output Index, which includes both manufacturing and services, climbed to a 17-year peak of 63.2, indicating broad-based economic momentum.

 

Employment in the services sector rose moderately, supported mainly by part-time recruitment amid higher labor costs.

 

Inflation pressures intensified, with input and output prices rising at the fastest rates in more than ten years due to higher wages, overtime payments, and increased business expenses.

 

Despite the surge in demand and cost pressures, business confidence improved, with firms optimistic about future growth and capacity expansion.

 

The service sector’s stellar performance complements manufacturing PMI growth, which also hit a near 18-year high, revealing a comprehensive expansion across the economy.

 

Detailed Breakdown of August 2025 Services PMI Insights

 

Surge in New Orders and Output

A core driver of the robust PMI figure was a sharp rise in new orders, both domestic and international. This surge pushed the business activity index higher as service providers responded to increased demand. Export orders contributed strongly, marking the third-highest rise since the series inception in 2014, highlighting India's competitive position in global services markets.

 

Employment Trends and Labor Costs

Indian service firms scaled up hiring, albeit at a moderate rate, with anecdotal evidence indicating a preference for part-time employment. The growth in staffing helped companies manage growing workloads efficiently. However, rising wages and overtime payments contributed significantly to higher operating costs, leading to inflationary pressures on input and output prices.

 

Inflation and Price Pressures

August recorded the fastest increase in input and output prices in over a decade. Business expenses rose sharply, driven by salary hikes, higher transportation fees, and material costs. Service providers largely passed these increased costs to clients, leading to the steepest charge inflation observed in more than 13 years, reflecting a tight labor market and sustained demand.

 

Broader Economic Impact and Outlook

The strong services sector expansion augurs well for the overall economy, reinforcing recent statistics that India’s GDP growth rate surged unexpectedly to 7.8% in Q1 FY26. The composite PMI’s 17-year high signifies that the manufacturing sector's near 18-year peak growth is complementing services, jointly driving economic momentum despite global uncertainties and tariff-related pressures.

 

Pranjul Bhandari, Chief India Economist at HSBC, observed that the surge in new orders and the broad-based expansion in international sales boosted overall demand, prompting firms to increase hiring. Higher labor costs and robust demand conditions substantially increased prices, but also created optimism around sustained growth prospects.

 

Conclusion

August's final HSBC India Services PMI reading of 62.9 underscores a vibrant and expanding services sector, driven by strong demand, especially internationally, and improved domestic economic activities. While inflationary pressures remain a challenge due to higher labor and input costs, the sector’s resilience and confidence signal robust growth momentum continuing into the near future, supported by complementary gains in manufacturing and positive macroeconomic fundamentals.

 

Source: HSBC India Services PMI, S&P Global Data