India’s services sector experienced a significant surge in activity in February, driven by strengthening domestic and international demand. This led to a faster expansion in output and a notable rise in employment, according to a monthly survey released on Wednesday. The seasonally adjusted HSBC India Services PMI Business Activity Index climbed from January’s 26-month low of 56.5 to 59.0 in February, signaling a strong pace of growth.
India’s services sector experienced a significant boost in February 2025, driven by strong domestic and international demand, leading to a rapid expansion in output and a notable increase in employment, according to a monthly survey released on Wednesday. The HSBC India Services Purchasing Managers’ Index (PMI) Business Activity Index rose sharply from January’s 26-month low of 56.5 to 59.0 in February, signaling robust growth momentum.
Understanding the PMI Growth
In PMI terms, a reading above 50 signifies expansion, while a score below 50 indicates contraction. The sharp increase to 59.0 suggests a healthy acceleration in business activity. “India’s services business activity index rose to 59.0 in February 2025, up considerably from January’s 26-month low of 56.5. Global demand, which grew at its fastest pace in six months according to the new export business index, played a major role in driving output growth for India’s services sector,” stated Pranjul Bhandari, Chief India Economist at HSBC.
Key Drivers of Growth
The survey attributes this growth to several key factors:
- Improved Productivity: Indian service providers witnessed productivity gains, improving overall business efficiency.
- Rising Demand: The robust underlying demand led to greater intake of new business.
- International Orders: Growth was significantly supported by a surge in global demand, particularly from regions such as Africa, Asia, Europe, the Americas, and the Middle East.
Employment and Capacity Expansion
To cater to the growing demand and alleviate capacity pressures, Indian services firms intensified their recruitment efforts. Employment in the sector expanded sharply, marking one of the highest growth rates since data collection began in December 2005.
“Job creation and charge inflation remained strong during February. Looking ahead, business sentiment remains broadly positive, but did slightly slip last month to its lowest level since August 2024,” Bhandari added.
Positive Business Sentiment and Future Outlook
Despite the marginal dip in business sentiment, overall market confidence remains strong. Several factors contribute to this positive outlook:
- Advertising and Customer Relations: Improved marketing strategies and stronger customer engagement continue to support business expansion.
- Efficiency Gains: Process optimizations have enhanced operational efficiency across service providers.
- Strong Demand Conditions: The prevailing demand scenario indicates a sustained growth trajectory.
Approximately 25% of survey participants expressed optimism about future business growth, whereas less than 2% held a pessimistic outlook.
The HSBC India Composite Output Index, which considers both manufacturing and services PMI indices, also reflected strong expansion, rising from 57.7 in January to 58.8 in February. This highlights broad-based economic growth across India’s private sector.
Employment levels within the composite index continued to rise at a remarkable pace, aligning with January’s record figures. Additionally, cost pressures remained relatively moderate compared to previous months, indicating stable inflationary conditions.
On the broader economic front, India’s GDP growth rebounded to 6.2% in the December 2024 quarter. Although this marks an improvement from recent lows, it remains lower than the previous year’s figures. The Indian government has revised its GDP growth projection for the full 2024-25 fiscal year to 6.5%, slightly higher than its initial estimate of 6.4% but lower than the revised 9.2% growth rate recorded in 2023-24.
Despite the slight deceleration in overall GDP growth, India is expected to retain its position as the fastest-growing major economy globally, reflecting the resilience and dynamism of its services sector.
The February PMI data underscores the strength of India’s services sector, buoyed by rising domestic and international demand, robust job creation, and positive business sentiment. While challenges remain, particularly concerning external economic conditions and inflationary pressures, the sector’s overall trajectory remains highly promising. As India continues to strengthen its position as a global economic powerhouse, the services sector is set to play a crucial role in driving sustainable growth and employment generation in the coming years.
