The Indian Services PMI for December 2025 registered 59.70, down from 60.40 in November and below the 59.90 consensus estimate. This marks the third consecutive month of slight decline after a peak of 65.20 in August, yet the index remains well above the 12-month average of 61.30, signaling sustained expansion in the services sector. The data, sourced from the Sigmanomics database, reflects ongoing strength in domestic consumption and business activity despite headwinds from tighter monetary policy and global uncertainties.

Drivers this month

• New business growth slowed to 57.80 from 59.50 last month, indicating cautious client demand.
• Employment rose moderately, with the employment sub-index at 54.20, down from 55.10.
• Input price inflation eased to 48.70, the lowest in six months, reflecting softer commodity prices.
• Output prices remained stable, with the output price index steady at 52.30.

Policy pulse

The Services PMI remains comfortably above the 50 expansion threshold, but the downward trend aligns with the Reserve Bank of India’s (RBI) recent rate hikes aimed at curbing inflation. The RBI’s repo rate currently stands at 6.75%, up 125 basis points since June 2025. The moderation in PMI suggests monetary tightening is beginning to temper demand without triggering contraction.

Market lens

Immediate reaction: The Indian rupee (INR) depreciated 0.30% against the USD within the first hour post-release, reflecting cautious sentiment. The 2-year government bond yield rose 5 basis points, while breakeven inflation rates edged down slightly, signaling mixed market expectations on inflation persistence.

India’s Services PMI is a vital gauge of the country’s dominant services sector, which accounts for nearly 55% of GDP. The December reading at 59.70, while lower than recent months, still indicates robust growth. This aligns with other core macroeconomic indicators: Q3 GDP growth was revised upward to 6.10% YoY, and retail inflation eased to 5.40% in November from 6.00% in October.

Monetary Policy & Financial Conditions

The RBI’s tightening cycle has been the primary macro lever influencing the PMI. Higher borrowing costs have started to slow credit growth, which expanded at 14.20% YoY in November, down from 15.80% in September. The liquidity squeeze is reflected in the PMI’s moderation, suggesting a lagged but visible impact of monetary policy on services activity.

Fiscal Policy & Government Budget

Fiscal stimulus remains supportive, with the government maintaining a 6.40% fiscal deficit target for FY2026. Infrastructure spending and digital economy initiatives continue to bolster services demand, particularly in IT, telecommunications, and financial services. The recent budget allocated INR 1.20 trillion towards urban development, which should sustain medium-term sector growth.

External Shocks & Geopolitical Risks

Global uncertainties, including US-China trade tensions and energy price volatility, pose downside risks. However, India’s diversified export base and growing domestic market provide buffers. The services sector’s relative insulation from commodity shocks compared to manufacturing is a stabilizing factor.

What This Chart Tells Us: The Indian services sector is trending toward a more sustainable growth pace after a strong rebound. The easing PMI suggests monetary policy is effectively cooling demand without risking contraction. However, vigilance is needed as global uncertainties and domestic inflation dynamics evolve.

Market lens

Immediate reaction: INR/USD weakened by 0.30%, reflecting cautious investor sentiment. The 2-year government bond yield rose 5 basis points, indicating expectations of continued RBI tightening. Breakeven inflation rates edged down 3 basis points, suggesting markets anticipate inflation moderation.

Looking ahead, the Services PMI trajectory will be shaped by domestic demand resilience, monetary policy calibration, and external risks. We outline three scenarios:

• Bullish (30% probability): PMI stabilizes above 60 as inflation eases faster than expected, enabling RBI to pause hikes. Strong government spending and export growth support services expansion.
• Base (50% probability): PMI hovers around 58-60, reflecting moderate growth with continued monetary tightening and manageable inflation. Global uncertainties persist but do not derail momentum.
• Bearish (20% probability): PMI falls below 55 if inflation spikes or global shocks intensify, forcing aggressive rate hikes and dampening demand sharply.

Structural reforms in digital infrastructure and financial inclusion remain long-run growth drivers. The sector’s increasing integration with technology and exports should support sustained expansion despite cyclical fluctuations.

Policy pulse

The RBI’s forward guidance suggests a cautious approach, balancing inflation control with growth support. Market expectations for rate hikes have moderated, consistent with the PMI’s easing trend.

Market lens

Currency and bond markets will closely monitor upcoming PMI releases as leading indicators of economic momentum and inflation pressures. Volatility may increase if PMI deviates significantly from expectations.

The December 2025 Services PMI for India signals a healthy but moderating expansion in the services sector. While the index has softened from recent highs, it remains well above the growth threshold, supported by resilient domestic demand and easing input costs. Monetary tightening by the RBI is beginning to temper growth, but fiscal stimulus and structural reforms provide counterbalance.

Risks from global geopolitical tensions and inflation volatility remain, but the sector’s fundamentals and government policy stance suggest a stable outlook. Investors and policymakers should watch upcoming PMI prints closely as a barometer of economic health and inflation dynamics.

Key Markets Likely to React to Services PMI

The Indian Services PMI is a critical indicator for markets sensitive to domestic economic momentum, inflation, and monetary policy. Key tradable assets historically correlated with PMI movements include:

• NSEI – India’s benchmark equity index, sensitive to economic growth signals from services.
• USDINR – The rupee-dollar currency pair, reflecting capital flows and monetary policy expectations.
• HDFCBANK – A leading private sector bank, benefiting from credit growth tied to services sector demand.
• BTCUSD – Bitcoin, often viewed as a risk sentiment barometer, reacts to macroeconomic shifts.
• EURUSD – Euro-dollar pair, influenced by global risk sentiment and capital flows linked to emerging markets like India.

FAQs

What is the significance of India’s Services PMI?

The Services PMI measures the health of India’s services sector, a major GDP contributor, indicating expansion or contraction trends.

How does the Services PMI affect monetary policy?

Strong PMI readings can signal inflationary pressures, influencing RBI’s interest rate decisions to balance growth and price stability.

What are the risks to India’s services sector growth?

Risks include global geopolitical tensions, inflation spikes, and tighter financial conditions that could slow demand.

Key takeaway: India’s Services PMI remains in robust expansion but shows signs of moderation, reflecting effective monetary policy and evolving macro risks.

This has been drafted with AI assistance and then thoroughly reviewed, refined, and approved by our human editorial team to ensure accuracy, and originality.