India’s Services Sector Soars to 15-Year High in August as Inflation Pressures Intensify

Services Surge to Multi-Year Peak

India’s services sector delivered its strongest performance in 15 years this August, with the Purchasing Managers’ Index (PMI) climbing to 61.9, a level not seen since 2010. The surge underscores robust demand, growing business confidence, and the resilience of Asia’s third-largest economy despite global headwinds.

The services sector, covering finance, IT, transport, hospitality, and consumer services, represents nearly 60% of India’s GDP. A reading above 50 signals expansion, and August’s figure comfortably exceeded expectations, pointing to sustained momentum in domestic consumption.

Demand Surge Powers Expansion

New business orders surged in August, particularly in IT services and hospitality, fueled by rising consumer spending and increased corporate activity. Export demand also improved, with global clients seeking India’s outsourcing capabilities amid shifting supply chains.

Employment expanded as well, with companies ramping up hiring to meet demand. Job creation in services rose at its fastest pace in 18 months, adding confidence to India’s broader growth trajectory.

Inflation Concerns Darken the Outlook

The upbeat data was tempered by intensifying price pressures. Input costs, ranging from wages to energy and imported materials, rose sharply in August, forcing many firms to pass costs onto consumers. The survey showed that selling prices climbed at one of the fastest rates in two years, raising concerns about the inflationary outlook.

While India’s headline inflation has eased somewhat from its recent peaks, persistent cost pressures in services could challenge the Reserve Bank of India (RBI), which has carefully balanced supporting growth with keeping prices stable.

A Boon for Policymakers, With a Warning

Economists see the August PMI data as evidence of India’s resilience, even as global growth weakens. Yet they caution that high inflation could curb spending and complicate the RBI’s policy stance.

“Services activity is surging on strong demand, but rising costs may force the RBI to rethink its easing bias,” said one Mumbai-based economist. “The inflation risk embedded in these numbers cannot be ignored.”

Broader Economic Context

India’s services surge follows steady expansion in its manufacturing PMI, which has remained in growth territory for over two years. Together, the twin engines of services and manufacturing suggest the economy is on track for 6.5%–7% GDP growth in fiscal 2025.

However, external risks loom: higher global oil prices, slowing demand in Europe and the U.S., and lingering trade tensions could weigh on exports. Domestically, persistent inflation and rural demand weakness remain potential constraints.

Market and Investor Reaction

Markets welcomed the PMI report, with the rupee stabilizing after recent declines and equity benchmarks gaining modestly. Banking and IT stocks led the rally, reflecting optimism about credit demand and outsourcing opportunities.

Still, bond yields edged higher as investors priced in a potentially more cautious stance from the RBI if inflation remains elevated.

The Bottom Line

India’s services sector hitting a 15-year high in August highlights the economy’s resilience, but inflationary pressures are intensifying. For policymakers, the challenge will be sustaining growth momentum while preventing rising costs from undermining consumption and investment.

The strong PMI print is a milestone, but the balance between booming demand and rising inflation will define India’s economic narrative in the months ahead.