In February, India’s service PMI (Purchasing Managers’ Index saw a significant bounce. The figure has increased from 56.5 to 59 in January, indicating strong expansion in the service sector. In addition, composite PMI, which is a combined form of service and manufacturing PMI, was recorded from 57.7 in January to 58.8.
PMI is an important economic indicator, which is used to understand the performance of business activities. If the PMI level is above 50, it is seen as a trade expansion, while the level below 50 reflects contractions. In this context, India’s February PMI growth indicates strong growth in the economy.
Importance of PMI: Mirror of economic activities
PMI (Purchaseing Manager Index) is a major tool to understand the dynamics of the economy. It is published every month and displays the status of business activities in the service and manufacturing sector.
PMI calculation is based on the following factors:
- Number of new orders
- Production level
- Employment status
- Supply and demand status
- Level of business belief
How to understand PMI score:
| PMI score | Meaning |
|---|---|
| More than 50 | Increase in business activities |
| under 50 | Decline in business activities |
| Equal to 50 | Stability |
The increase in February service PMI shows that India’s service sector is rapidly expanding, which is a positive sign for economic development.
Strength of service sector: main reason
India’s service sector saw an improvement in February, due to increase in global demand and increase in new orders.
Pranjul Bhandari, Chief India Economist of HSBC, said that according to the new Export Trade Index, the fastest global demand has increased in the last six months, which strengthened India’s service sector production.
The main reasons for the strength of the service sector:
- Increase in global demand: India’s demand for services in international markets has increased.
- New Orders boom: At the domestic and globally, traders ordered new services.
- Employment generation: New jobs were created in the service sector, which reduced the unemployment rate.
- Bounce in technical services: IT, financial services and business process outsourcing (BPO) sector saw a boom.
- Support of government policies: The policies implemented by the government, such as “Make in India” and “Digital India”, are proving to be helpful in promoting the service sector.
Decline in manufacturing sector: require balance
While a strong growth in the service PMI was seen, the performance of the manufacturing sector was the opposite. Manufacturing PMI came to 56.3 in February, which is a 14 -month low.
According to the HSBC India Manufacturing Purchasing Manager Index, the last quarter level was 56.8, which has now fallen to 56.3.
Due to decline in manufacturing sector:
- Obstruction of global supply chain
- Cost of high raw materials
- Instability in demand
- Slow new investment
However, the service sector strongly can be expected that the manufacturing sector will also gradually bounce.
India’s strength increased in service sector exports
India’s service sector is performing strongly not only in the domestic market but also globally. Last year, India’s service exports performed better than Goods Export.
According to HSBC, an increase in international orders is supporting this trend. Service providers have reported better demand from customers from Africa, Asia, Europe, America and Middle East.
Main point:
- Fast increase of service exports in the last six months
- Increase in employment generation, fastest after 2005
- Exports increased to BPO, IT and Financial Services
This is an important indication for India that the contribution of the service sector is also increasing in export income.
Service sector contribution to economy
India’s third quarter GDP report also saw significant contribution of the service sector. According to the report, in the third quarter, India’s economic growth rate increased from 5.6% to 6.2%, with the service sector an important role.
Estimated growth for 2025:
- Expect an increase of 7.3% in India’s service sector in FY 2025.
- Last year, the services sector had a growth rate of 9%.
- Digitization and technological progresses can carry forward this growth.
