India’s Services Sector Records Strongest Growth in Months

India’s services sector experienced a significant acceleration in February, driven by a surge in domestic and international demand. Businesses saw a sharp rise in new orders, prompting companies to expand their workforce at one of the fastest rates in nearly two decades. Despite some inflationary pressures, firms remained optimistic about the future, reflecting a resilient and growing economy.

PMI Signals Strong Expansion

The Services Purchasing Managers’ Index (PMI), a key indicator of the sector’s health, climbed to 59.0 in February from 56.5 in January. Any reading above 50 signifies expansion, and the latest data highlights one of the strongest rates of growth in recent months. This sharp improvement comes after January saw a slight slowdown, marking a renewed push for expansion in India’s services sector.

Surging Demand Fuels Growth

• One of the primary drivers of this expansion was a sharp increase in new business orders, both from domestic and international markets. Demand for services rose at the fastest pace in months, indicating strong consumer and business confidence.
• Domestic demand remained robust, with businesses witnessing higher spending from consumers and enterprises alike.
  International demand surged significantly, marking the fastest rise in export orders in six months. Orders came in from key regions, including Africa, Asia, Europe, the Americas, and the Middle East, showcasing India’s growing global service footprint.

Service providers noted increased spending across industries, including technology, finance, tourism, and consumer services, which contributed to the overall sector expansion.

Employment Growth at Record Highs

With business activity rising and workloads increasing, service providers accelerated their hiring efforts, leading to one of the sharpest increases in employment since data collection began in December 2005.

• Many companies hired additional full-time and part-time workers to meet demand.
• The increase in workforce suggests businesses expect sustained growth in the coming months, reinforcing confidence in the broader economy.

Cost Pressures and Inflation Trends

While the services sector expanded, firms faced rising operational costs due to higher wages, increased hiring, and overtime payments. However, input cost inflation eased to a four-month low, providing some relief to businesses.

To offset these cost increases, many service providers raised their prices, leading to an increase in output charge inflation. The consumer services segment was most affected, as higher costs for food, materials, and packaging pushed prices upward.

Despite these challenges, businesses remained optimistic, with many expecting demand to remain strong throughout the year.

Composite PMI Reflects Overall Economic Resilience

The services sector’s rapid growth helped offset a slowdown in manufacturing, keeping the broader economy on an expansion path. The Composite PMI, which tracks activity across both manufacturing and services, rose to 58.8 in February, up from 57.7 in January.

This suggests that India’s private sector remains resilient, with strong momentum despite global economic uncertainties.