The Indian services economy recorded its sharpest pace of expansion since mid-2010, with the HSBC India Services PMI Business Activity Index climbing from 60.5 in July to 62.9 in August.
The reading reflects buoyant demand conditions and marks the steepest growth in over 15 years, according to survey data compiled by S&P Global.
Demand Surge Powers Services Output
Service providers attributed the strong upturn to efficiency gains, increased client demand and a sharp rise in new business. Notably, new orders expanded for the forty-ninth consecutive month in August, accelerating to their fastest rate in more than a decade and a half. Around 37 per cent of firms reported stronger activity against 11 per cent that saw a decline.
International demand also strengthened, with overseas orders registering the third-fastest growth since the question was introduced into the survey in 2014. Companies highlighted greater interest from clients across Asia, Europe, the Middle East and the US, further adding momentum to the sector’s expansion.
Costs Rise as Firms Boost Hiring
While growth momentum was evident, businesses continued to grapple with higher costs. The rate of charge inflation hit a historic high and rose to the steepest level seen in over 13 years.
Reports indicated that wage increases and overtime payments were the primary contributors to rising expenses, alongside higher transportation and material costs. This pushed input cost inflation to a nine-month high.
In response, service providers raised their selling prices at the steepest pace since July 2012. The pass-through of higher costs to consumers, combined with strong demand, resulted in a historically sharp increase in output charges.
Employment in the services sector rose moderately, with some firms favouring part-time hires to meet growing workloads. Despite steady job creation, the backlog of work expanded slightly, though at the weakest pace in nearly a year.
Composite Growth at 17-Year Peak
The strength of the services economy also bolstered the wider economy. The HSBC India Composite PMI Output Index, which tracks activity across manufacturing and services, rose from 61.1 in July to 63.2 in August. This represented the sharpest pace of expansion in more than 17 years, fuelled primarily by accelerating services growth.
Manufacturing output continued at a solid pace, but services firms led the way with faster improvements in business activity. Aggregate employment rose at a firmer rate than in July, highlighting broad-based optimism across industries.
Pranjul Bhandari, Chief India Economist at HSBC, said, “India’s services PMI Business Activity Index reached a fifteen-year high last month, from 60.5 in July to 62.9 in August, on the back of surging new orders. The broad-based expansion in international sales bolstered overall demand, which prompted Indian services firms to hire additional workers. Reflecting higher labour costs and robust demand conditions, both input and output prices increased substantially in August. Meanwhile, the composite PMI rose to a seventeen-year high of 63.2 in August, which indicated strong broad-based output growth in both the manufacturing and service sectors.”
Outlook Brightens Despite Inflationary Pressures
Survey respondents expressed optimism for the year ahead, with confidence reaching a joint five-month high. Firms cited increased advertising budgets, expectations of strong demand trends, and recent recruitment as factors that could support sustained growth.
While inflationary pressures remain a challenge, the resilience of demand suggests India’s services sector is well-placed to sustain its upward trajectory. With the August data pointing to the fastest services sector expansion since June 2010, businesses and policymakers alike will be watching closely for how the trend unfolds in the coming months.
