Services output growth picks up further in Aug

India's services sector output continued to grow at a robust pace, with 11 of the 19 sectors tracked under the trial Index of Services Production (ISP) growing quicker in August compared to July.

While the Ministry of Statistics and Programme Implementation (MoSPI) does not yet publish overall growth rate for the ISP, economists estimated that the output of the 19 services grew 14% in August, up from 13.5% in July.

Of the 19 sectors under ISP, 13 recorded double-digit year-on-year growth in August as against 10 in July.

The August ISP figures suggest strong momentum in service production, economists said. The services sector is a key driver of economic activity in India. The 19 sectors currently being covered under ISP account for around 60% of the formal services sector.

Retail trade saw the highest growth in August at 19.9%, followed by real estate and repair services, with both sectors growing 17.6%. Retail trade and real estate had grown 18.5% and 14.4% in July, respectively. Repair services output grew in August having contracted 5% in July.

"Retail trade led the expansion, likely supported by improving consumer demand ahead of the festive season," said Pranjal Ghate, economist at Brickwork Ratings. "Meanwhile, strong growth in real estate, repair services, and banking points to resilient domestic activity," Ghate said.

Air transport and arts and recreation were the only two sectors where output contracted year-on-year in August. "The Air transport decline probably occurred due to higher airfares caused by elevated fuel prices from the West Asia crisis, and DGCA's passenger traffic data supports this claim," Ghate said.

Air transport output has contracted in all five months of this financial year, while arts and entertainment grew 1.7% in July.

"An upward growth momentum of double digits is shown by the ISP since June 2026, with an average growth of 13.6% during the three months till August 2026," said DK Srivastava, chief policy advisor, EY India.

"Given the weight of services sector in overall GDP, these trends indicate the potential of a healthy GDP growth for the second quarter of 2026-27. This is also confirmed by the second quarter IIP growth which averaged 7.3%," Srivastava said.

Going forward, the services sector may face headwinds from an uncertain external environment, volatile energy prices, supply-chain frictions, and rising input costs, said Rajani Sinha, chief economist at CareEdge Ratings.

"Consumer-facing segments such as accommodation & food services and transportation could face risks from emerging inflationary pressures, which may erode purchasing power and affect demand," Sinha said. "Nevertheless, given the sustained strength in overall economic activity, we expect the services sector to retain its growth momentum in the months ahead."