India's services sector achieves 15-year growth high, despite tariff concerns

India's services sector growth accelerated to a 15-year high in August on robust demand, which also pushed prices higher at the fastest rate in over a decade, a business survey showed on Wednesday.

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India's services sector experienced its fastest growth in 15 years during the month of August, driven by robust demand which also led to a significant increase in prices. The surge in economic activity follows recent data revealing a higher-than-expected growth rate of 7.8% in Asia's third-largest economy last quarter. However, concerns loom over the impact of the steep 50% tariff imposed by the Trump administration on U.S. imports of Indian goods, potentially disrupting future growth.

According to the HSBC India Services Purchasing Managers' Index (PMI), compiled by S&P Global, the index rose to 62.9 in August, up from 60.5 in July. While the reading was slightly lower than the preliminary estimate of 65.6, it still signifies strong growth as any reading above 50.0 indicates expansion.

Pranjul Bhandari, chief India economist at HSBC, highlighted that the surge in the services PMI was primarily driven by a significant increase in new orders. This expansion in new business activity was the most notable since June 2010, bolstered by a rise in international demand with export orders reaching their highest level in 14 months.

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As a result of the heightened demand, companies were able to pass on increased costs to consumers, leading to a spike in output prices not seen since July 2012. Input costs also rose at the fastest pace in nine months, indicating strong inflationary pressures that may soon translate into higher overall inflation rates.

Despite these challenges, business confidence for the upcoming year saw a notable improvement to a three-month high, with firms attributing this optimism to planned advertising spending and positive demand forecasts. However, the growth in employment remained relatively modest.

The Composite PMI, which combines data from both the services and manufacturing sectors, soared to a 17-year high of 63.2 in August from 61.1 in July. This indicates a broad-based economic momentum across various segments of India's economy, showcasing a positive outlook for the country's overall economic performance in the months ahead.