India's Services Sector Hits 5-Month High in August Amid Strong Domestic Demand: PMI Report

India’s services sector experienced its fastest growth in five months this August, as resilient domestic demand and easing inflationary pressures drove expansion. The HSBC India Services Purchasing Managers’ Index (PMI), compiled by S&P Global, climbed to 60.9 in August, up from 60.3 in July, surpassing the preliminary estimate of 60.4. This marked the highest PMI reading since March and extended the sector’s growth streak, which has remained above the 50-point threshold—indicating expansion—since August 2021.

The August PMI reading significantly exceeded the long-term average, signaling continued robust growth within India’s services industry. Pranjul Bhandari, Chief India Economist at HSBC, attributed this momentum to a surge in new orders, particularly from the domestic market. “The growth was largely driven by an increase in domestic orders,” Bhandari noted. Although employment levels remained strong, the pace of hiring slightly slowed compared to July.

The new business sub-index rose to a four-month high in August, remaining above its historical average, further underscoring the resilience of domestic demand. While international demand remained positive, growth in that segment slowed to a six-month low, reflecting softer global economic conditions. Despite the international slowdown, the overall outlook for the sector remained positive, though business confidence dipped to its lowest level in over a year.

Cost pressures within the services sector increased moderately in August, driven by higher food, labor, and transportation expenses. However, input cost inflation slowed to a four-year low, offering some relief to service providers. “On a positive note, input costs rose at their slowest pace in six months, benefiting both the manufacturing and services sectors,” Bhandari added. As a result, output price inflation eased in August.

Despite the strong performance of the services sector, India’s manufacturing sector saw a slight dip in growth, with its PMI falling to a three-month low of 57.5 in August.

The services sector’s robust performance highlights its growing importance in driving India’s economic growth, supported by resilient domestic demand and improving inflation dynamics. However, the broader outlook remains cautious amid global economic uncertainties.