India is all set to launch high frequency dataset to capture the formal segment of the services sector, supporting evidence-based policymaking, amid data quality concerns due to the inherent heterogeneous nature of variables and partial or under coverage of the vast informal segment.

Joining the league of Japan, South Korea, China and the European Union, the Ministry of Statistics and Programme Implementation (MoSPI) will launch the Index of Services Production (ISP), which shall be a new macro indicator to measure the short-term changes in the growth of the services sector, the dominant driver of the economy, accounting for about 55% of the gross value added (GVA).

While the Index of Industrial Production long served as an indicator for manufacturing, mining, and electricity; the services sector, which grew by 9.1% in FY26, up from 7.2% in FY25, lacked a comparable index.

Measuring services production is a daunting assignment and also complex than measuring industrial production due to the intangible nature of services, rapid technological change, evolving business models, and fragmented data.

Proxies — as employment, turnover, transaction volumes, passenger kilometres, or subscriber numbers — may suffix but may not accurately capture underlying production, especially during periods of structural change.

As a panacea to the inherent limitations of the present structure, which is dependent mainly on quarterly GDP estimates and indirect indicators, the MoSPI finalised the services index, compiled using outward supply of enterprises registered under goods and services tax (GST); but can potentially leverage digital data in the future.

The GST may not fully satisfy the conceptual requirements of national accounts as its database has been created primarily for taxation rather than statistical purposes. Hence, the new index will blend administrative, and survey data for accurate services sector estimates, improving timeliness and reducing reporting burden.

However, the incomplete coverage of informal enterprises and limited price deflators for many service industries complicate the estimation of real output and productivity as well as influence the accuracy of real GVA.

Deflators show whether growth is owing to jump in the actual quantity of services production, or on account of higher prices.

The sectoral contribution to GVA hit a historic high of 56.4% (FY26 first advance estimates), underscoring the rising importance of modern, tradable, and digitally delivered services.

Conventional deflators struggle to separate price movements from quality improvements, leading to potential biasedness in volume estimates.

The MoSPI’s Services Producer Price Index (PPI) is still on an experimental basis and no weights have been assigned to seven sectors — banking, securities transactions, insurance, pension fund management, railways, air passenger transport and telecom services — as they do not yet cover the entire services sector.

Developing robust quality-adjusted price indices for services remains an area where statistical systems worldwide continue to face conceptual and practical difficulties.

Apart from GST data, the ISP has the advantage of leveraging digital public infrastructure such as corporate filings, and electronic transactions.

Since its rollout in 2017, India’s GST registrations have grown steadily, rising from 66.5 lakh at launch to 1.65 crore active taxpayers at present.

The Unified Payments Interface account for 57%, surpassing cash transactions at 38%.

As the government seeks to strengthen GDP estimation, inflation analysis, and employment projections, the larger informal sector, which contributes over 50% of the GVA, is out of the index, leading to possible data gaps.

The 1991 economic liberalisation accelerated the growth of services, thus, calling for more sophisticated tools to identify high-growth and underperforming subsectors.

As the government reasons India needs a short-term indicator to measure the growth of services sector to take suitable measures and steer the growth path; questions appear to be far more than the answers as the policy makers seek to juggle around numbers.

The index can support state-level policy formulation if disaggregated data become available, helping identify regional disparities in services growth and enabling targeted infrastructure and skill-development initiatives.

The ISP represents an important institutional reform but its usefulness will ultimately depend on the robustness of methodology, the quality of administrative data and its ability to capture the informal and digital segments of the services sector, and minimising dependence on proxies through improved service-sector price indices.

International experience

Countries have adopted different approaches to developing their services indices depending on data availability, institutional capacity, and economic structure.

Many Organisation of Economic Cooperation and Development (OECD) countries have made significant efforts to obtain a more accurate view of short-term economic phenomena in their services sectors. Some have developed more detailed statistics for services and enhanced the quality of existing series.

Within Asia, Japan has one of the most mature and stable service activity indices, measuring the volume of activity rather than prices and compiled monthly by the Ministry of Economy, Trade and Industry (METI); China rapidly improved its services statistics through a comprehensive monthly production index and extensive use of administrative data, compiled by National Bureau of Statistics; South Korea integrated service indices closely with industrial production statistics and macroeconomic analysis, compiled by KOSTAT; and Singapore emphasises highly granular, digitally driven service statistics instead of a single composite index.

China, Japan, South Korea, and the European Union have dedicated production-based services indices. India is on the same page with its proposed ISP.

Eurostat coordinates monthly publication of the Services Production Index under the European Business Statistics Regulation.

In the U.S., the services sector is monitored through a combination of official indicators produced by the U.S. Census Bureau, Bureau of Economic Analysis, Bureau of Labor Statistics, and the Federal Reserve System.

Way forward

Integrating multiple administrative data sources and coordination among statistical bodies, regulators, and fiscal authorities will improve data quality and timeliness as well as enhance the credibility and policy relevance of India’s macroeconomic statistics.

This becomes all the more important given that the services sector is receiving strong policy support under the Union Budget 2026–27 to drive coordinated reforms and achieve a 10% global share in services exports by 2047.

New business activity in the services industry and manufacturing orders remained robust. File
| Photo Credit: Reuters

India’s business activity accelerated at its fastest pace in three months in July, thanks to strong demand, especially in the services sector, according to a survey that also showed companies hired at the fastest pace in over 18 years.

The data reflected sustained growth in the private sector, which according to the NDA government’s Union Budget since the national election will get incentives to improve skills and spur employment.

HSBC’s flash India composite purchasing managers’ index, compiled by S&P Global, rose to 61.4 this month from June’s final reading of 60.9, marking three years of expansion. The 50-level separates growth from contraction.

“The Flash Composite Output Index signalled continued robust growth in India’s private sector,” noted Pranjul Bhandari, chief India economist at HSBC. “The rise in output in July was led by a further increase in business activity in the manufacturing sector, while the pace of expansion in services output also accelerated and remained well above its long-run average.”

Services, manufacturing register growth

Overall expansion was led by the dominant services industry, whose PMI rose to a four-month high of 61.1 this month from 60.5 in June. Growth in manufacturing was also robust, and the factory PMI increased to 58.5 from 58.3 – its highest since April.

The report said favourable market conditions, buoyant client appetite and enhanced technology helped in the improvement of private sector activity. Both new business activity in the services industry and manufacturing orders remained robust.

Job creation rose at the fastest pace since April 2006, supporting overall business confidence at the start of this quarter, which eased to a seven-month low in June.

Inflation worries

“Companies turned more optimistic in July, following a moderation in business confidence in June,” Mr Bhandari said, adding, “We note that the rate of input cost inflation continued to trend higher in both sectors, which has driven firms to keep raising sales prices.”

Meanwhile, prices charged rose at the steepest pace in over 11 years, but robust demand allowed firms to pass on lofty input costs from high material, transportation and labour prices, to their clients.

Higher prices could cloud the Reserve Bank of India’s interest rate outlook, which is focused on returning inflation to its 4% medium term target. The central bank is expected to cut its key policy rate next quarter.

Image for representation.
| Photo Credit: Reuters

India’s services sector activity gained momentum in September, with new orders rising at the second fastest rate since June 2010, as per the S&P Global India Services Purchasing Managers’ Index (PMI), which moved up to 61 from 60.1 in August. 

A reading of over 50 on the index indicates an expansion in activity levels and September’s number, albeit slightly lower than the 13-year high of 62.3 in July, still indicated one of the strongest upticks in output in 13 years.   

With the rise in input costs retreating substantially to one of the lowest levels since late 2010, Services players raised prices at the slowest pace in six months, and exuded the highest positive sentiments about business prospects a year ahead, in nine years. 

“Additional staff were recruited to aid firms’ efforts to keep on top of current workloads and in anticipation of further growth in the coming months. The overall pace of job creation was moderate, but above its long-run average,” the firm said. 

Growth in new international orders slowed to a three-month low, yet was one of the quickest since September 2014, S&P Global Market Intelligence said, citing the Survey-based findings that are factored into the PMI. Demand grew from clients in Asia, Europe and North America, as per survey participants. 

The Services PMI has averaged 61.1 over the second quarter, slightly higher than the April to June average of 60.6. 

“The latest PMI results brought more positive news for India’s service economy, with September seeing business activity and new work intakes rising to one of the greatest extents in over 13 years,” said Pollyanna De Lima, economics associate director at S&P Global Market Intelligence. 

“Services charges rose at a softer rate as cost pressures receded to one of the lowest in two-and-a-half years. Although the latter indicates that near-term output price inflation may cool, worries about potential fluctuations in food prices due to El Niño means the RBI is highly unlikely to cut rates until early next year,” she averred. Improved optimism and buoyant demand conditions augur well for further growth in the sector, Ms. De Lima underlined.    

The Services PMI, read together with the Manufacturing PMI which eased to a five-month low of 57.5 in September with new orders slowing down, India’s private sector recorded the second sharpest increase in aggregate new business for over 13 years. The S&P Global India Composite PMI Output Index was up from 60.9 in August to 61 in September, indicating one of the strongest rates of expansion in just under 13 years, the firm added.