India's services sector has showcased remarkable resilience and growth in July 2025, scaling an 11-month peak driven by strong global orders and sustained domestic demand. The HSBC India Services Purchasing Managers' Index (PMI) reached 60.5 in July, a slight increase from 60.4 in June, marking the highest level since August 2024. A PMI reading above 50 indicates expansion in the sector. This consistent expansion reflects the sector's robust performance and its vital role in India's economic growth.

Key Growth Drivers

Several factors have contributed to this impressive growth:

• Strong Export Orders: A significant surge in new export orders has been a primary driver, with Indian service providers securing new business from Asia, Canada, Europe, the UAE, and the United States. The new export business sub-index registered its second-strongest expansion in a year, highlighting the increased international demand for Indian services.
• Sustained Domestic Sales: Alongside international demand, consistent domestic sales have also supported the sector's expansion. Advertising campaigns, new client acquisitions, and overall demand buoyancy have contributed to the increase in new orders.
• Finance and Insurance Leadership: Among the various service categories, finance and insurance have led the growth in both new orders and overall business activity, demonstrating the strength of these segments within the services sector.

Impact and Optimism

The robust performance of the services sector has had several positive impacts:

• Overall Economic Expansion: The HSBC India Composite PMI Output Index, which includes both manufacturing and services, edged up to 61.1 in July from 61.0 in June, indicating the strongest expansion since April 2024. This composite index highlights the combined strength of India's manufacturing and services sectors in driving economic growth.
• Business Confidence: Firms remain optimistic about future output, attributing their confidence to improved efficiency, greater digital adoption, marketing efforts, and technological upgrades. This optimism is a crucial factor in sustaining growth momentum.

Challenges and Concerns

Despite the overall positive performance, there are challenges and concerns that need attention:

• Slowdown in Job Creation: Hiring slowed to a 15-month low despite strong demand. This moderation in employment growth, with fewer than 2% of surveyed companies adding staff in July, is a cause for concern and needs to be addressed to ensure inclusive growth.
• Rising Price Pressures: Input and output prices saw a slight increase compared to June. Higher costs for food, freight, and labor have led firms to raise service charges, slightly exceeding input cost inflation. While these pressures exist, some economists believe that this trend could shift.

Future Outlook

Looking ahead, the Indian services sector is poised for continued expansion, driven by digital innovation, policy support, and increasing foreign investment. The sector already contributes over 50% to India's Gross Value Added (GVA), amounting to approximately US$1.4 trillion in FY2022-23, and is projected to increase to 56% by 2047. However, addressing regulatory hurdles and ensuring workforce readiness will be critical for sustaining long-term competitiveness.

The Reserve Bank of India (RBI) is expected to maintain its repo rate at 5.50% in its August meeting but may consider a rate cut in the next quarter. Any acceleration in inflation could influence the RBI's monetary policy decisions.

In conclusion, India's services sector has demonstrated strong growth and resilience in July 2025. While challenges such as slower job creation and rising price pressures need to be addressed, the sector's overall outlook remains positive, driven by strong domestic and international demand, and supported by technological advancements and strategic business initiatives.