April Services Surge, But Business Optimism At 2-Year Low

India’s services sector showed resilience in April 2025, with the S&P Global Services Purchasing Managers’ Index (PMI) climbing to 60.8, up from 61.2 in March. While the figure remains comfortably above the 50-mark that separates growth from contraction, the real surprise came from another corner: business confidence slumped to its lowest level in two years.

This divergence between output strength and sentiment reveals deeper undercurrents in India’s services economy. Growth persists, driven by robust demand and healthy new orders. However, firms are growing cautious about the road ahead. Here’s what the data tells us—and why it matters.

April 2025 Services PMI Snapshot 

Indicator	April 2025	March 2025
Services PMI (S&P Global)	60.8	61.2
New Business Orders	↑ (Strong)	↑ (Strong)
Input Cost Inflation	↑ (High)	↑ (High)
Employment Creation	↑ (Modest)	↑ (Modest)
Business Confidence	↓ (2-yr low)	↓

What’s Driving Growth in the Services Industry?

1. Robust Domestic Demand

The increase in new business orders—particularly from domestic clients—played a key role. Indian consumers spend on sectors like finance, real estate, IT services, and hospitality, even as global demand remains tepid. According to S&P Global, service providers saw the fastest intake of new work in three months.

2. Resilient Hiring Trends

April saw a modest but sustained uptick in employment. This suggests service firms are preparing for continued demand, despite their reservations about long-term prospects.

3. Strong Input Activity

Companies reported increased input costs due to higher labor, fuel, and material expenses. Yet, they were able to pass some of these costs onto clients, indicating decent pricing power.

Why the Confidence Dip?

Despite rising output and orders, business sentiment fell to its lowest since March 2022. This seems paradoxical, but several reasons explain the drop:

1. Inflationary Concerns

Persistent input cost inflation is biting into margins. Any further surge in energy, logistics, or wage costs could hurt profitability for firms already operating on tight spreads.

2. Global Economic Uncertainty

Firms remain wary of potential global slowdowns. With geopolitical tensions (such as the US-China tech standoff and Mideast instability) weighing on trade, Indian service exporters—especially in IT and business process outsourcing—face uncertain prospects.

3. Political Caution

With general elections underway, firms may delay investments and capex decisions, awaiting clarity on future policy direction. This is especially relevant for infrastructure-dependent sectors like logistics and telecom.

Economic Interpretation: Short-Term Momentum, Medium-Term Caution

From an economist’s lens, the current PMI print offers a nuanced picture:

• Short-Term: The services economy remains a pillar of India’s near-term growth. High-frequency indicators like GST collections, air travel, and e-commerce volumes have increased well into April.
  
• Medium-Term: The drop in confidence could act as a self-fulfilling prophecy. If firms expect slower growth, they may reduce hiring, cut back on expansion, and avoid risk—all of which may temper the broader recovery.
  

Contribution to GDP

Services account for roughly 53% of India’s GDP (Statista, 2024). With manufacturing showing mixed trends and agriculture under pressure from El Niño, services are the economy’s anchor in FY25. Any loss of momentum here will have outsized implications.

Advantages 

1. Digital Services Boom

India’s digital services exports crossed $250 billion in FY24 (Source: RBI), led by SaaS, fintech, and cloud services. Continued digitization and AI adoption could sustain this growth.

2. Urban Consumption Recovery

Rising urban employment and disposable incomes are supporting domestic consumption. This helps sectors like travel, hospitality, and entertainment, even if rural demand lags.

3. Policy Support

The government’s Production Linked Incentive (PLI) schemes for telecom and IT hardware could indirectly benefit services through ancillary demand.

Key Challenges Ahead

1. Cost Pressures

With input cost inflation staying elevated, services firms may face margin compression. Wage costs are a significant concern for sectors like IT and consulting.

2. Export Headwinds

Slow recovery in the EU and potential stagflation in the US may hurt India’s IT and BPO exports. Visa restrictions and rising protectionism could also impact the talent flow.

3. Hiring Plateau

While hiring rose modestly in April, the momentum is not broad-based. A slowdown in tech hiring, especially by large IT firms, could dampen employment-driven consumption.

The Way Forward

Despite the continued momentum in services output, the dip in business confidence presents a strategic dilemma for policymakers, investors, and corporate leaders. To sustain growth while reviving sentiment, the following factors will shape the road ahead:

1. Addressing Cost Inflation Pressures

One of the primary concerns driving pessimism is rising input costs, particularly in sectors like transport & logistics, IT services, and finance. The RBI’s monetary tightening pause gives breathing space, but:

• Policy support like input tax credits, targeted MSME relief, and supply-side logistics reforms can help.
  
• Services firms must optimize pricing strategies to pass on costs without affecting demand, primarily in price-sensitive segments like travel, retail, and customer service.
  

2. Strengthening Job Creation in High-Value Services

April’s employment uptick in services is positive, but job quality and sectoral disparity remain issues. IT and financial services continue to hire cautiously, while hospitality and tourism are rebounding:

• The government could incentivize digital upskilling and investments in AI-driven platforms, especially for rural service jobs.
  
• Focusing on formalizing the gig economy, which is currently powering last-mile services, will improve sentiment and productivity.
  

3. Monetary and Fiscal Coordination

If confidence continues to erode, it could impact private sector investments and consumer spending. The RBI, while maintaining a cautious tone, must consider:

• Forward guidance clarity to reduce uncertainty in borrowing and investment decisions.
  
• Coordination with fiscal authorities to frontload infrastructure spending, particularly on service enablers like ports, highways, and digital connectivity.
  

4. Boosting Global Competitiveness

India’s net services exports are robust, but global demand volatility (especially in IT and consultancy services) could weigh down future optimism.

• Diversifying export markets beyond the US and Europe will be key.
• Encouraging cross-border collaboration in healthcare, fintech, and ed-tech could open new channels for service growth.

5. Rebuilding Business Confidence through Policy Stability

Policy flip-flops—especially around e-commerce, data privacy, and gig worker regulations—have introduced unpredictability for services enterprises.

• A stable, long-term policy framework with clear digital regulations, tax norms, and labor policies will revive sentiment.
• Streamlining compliance and incentivizing capital formation in service clusters (e.g., GIFT City for financial services, or animation hubs for media) could help anchor investments.

Strategic Takeaway

India’s services sector is expanding, but this growth is walking a tightrope. The momentum could falter unless business confidence is restored through thoughtful fiscal and regulatory support. This is a time for investors to watch topline growth numbers and sentiment indicators like future output expectations, capex intentions, and PMI new business sub-indices.

Conclusion

India’s services sector is still growing, but confidence is faltering. April’s PMI print captures this dissonance. Policymakers, business leaders, and investors should not ignore sentiment indicators, as they often precede real economic inflection points.

While April was a month of strong output, the coming quarters will test the resilience of India’s service-based growth model in a shifting global and domestic environment.

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