India’s Services Sector Stays Strong in July: What It Means for MSMEs in 2025

India’s services sector continued its strong momentum into July, with the HSBC India Services Business Activity Index (PMI) climbing slightly to 60.5, up from 60.4 in June. While the uptick may seem marginal on paper, the reading represents the strongest expansion since August 2024—a clear sign that India’s service economy remains robust and resilient in the face of global uncertainties.

For India’s MSMEs—many of which operate within the service ecosystem—this is not just another statistic. It’s a reflection of rising domestic demand, improved international traction, and the success of new-age strategies like digital marketing and client-centric innovation. The services sector is becoming an engine of opportunity once again, and MSMEs are right at the heart of it.

Services Sector: Still Surging, Still Relevant

A PMI reading above 50 indicates expansion, and July’s 60.5 score places the sector firmly in the growth zone, well above its long-term average of 54.2. Behind this number is a story of renewed optimism, new client onboarding, and the effects of aggressive marketing and tech adoption.

According to Pranjul Bhandari, Chief India Economist at HSBC, the momentum is being driven by rising export orders and resilient domestic demand, particularly in digital and professional services. MSMEs, especially in sectors like IT support, design, logistics, and online retail, are seeing steady client inflows both from within India and across international markets.

MSMEs Riding the Services Wave

One of the most notable trends in the July PMI data is the sharp increase in international demand. Export-oriented service providers reported stronger orders from regions such as Asia, Europe, the UAE, Canada, and the US. Many Indian MSMEs, now leveraging digital tools and e-commerce platforms, are plugging directly into these global markets.

These are not just IT giants or unicorn startups. Increasingly, small B2B firms offering back-end solutions, digital consulting, content services, and fintech support are finding cross-border customers—a development that speaks volumes about India’s evolving MSME competitiveness.

Meanwhile, Finance & Insurance emerged as the top-performing sector, while real estate and business services lagged. For MSMEs offering support services to the BFSI sector—like data entry, software, risk analysis, and fieldwork—this trend indicates growing business opportunities.

Challenges: Pricing Pressure and Capacity Constraints

While growth is clearly visible, it doesn’t come without challenges. Input costs and output charges rose faster in July, driven by increases in food, freight, and labour expenses. MSMEs, which often operate on tight margins, are particularly sensitive to such cost fluctuations.

Additionally, backlogs of work have reached a five-year high, suggesting that businesses—especially smaller ones—are struggling to keep up with rising demand due to limited manpower or delayed payments from clients. This strain may further delay delivery cycles or impact service quality, especially for MSMEs that lack scale.

Despite this, the overall inflation rate remains moderate by historical standards, and strong demand is allowing firms to pass on some of the cost increases without major disruptions.

Employment Trends: Slowing, But Stable

The report also points to the weakest increase in service sector employment in over a year. Job creation was minimal, with fewer than 2% of firms hiring new staff in July. This trend reflects a cautious hiring stance despite business growth—a familiar story for MSMEs, which often delay recruitment until absolutely necessary.

Many MSME owners are opting to optimise existing staff productivity through digital tools, automation, and freelance support, rather than onboarding full-time employees.

Composite Outlook: Solid But Mixed

The broader HSBC India Composite PMI, which includes both manufacturing and services, nudged up from 61.0 to 61.1 in July. This shows that India’s private sector remains dynamic. Output and new orders continue to grow quickly, but optimism is slightly subdued, and employment remains sluggish.

For MSMEs, this sends a mixed signal: while demand and revenue opportunities are growing, operational challenges and cost management remain top concerns.

What This Means for MSMEs

For India’s 6.3 crore+ MSMEs, especially those in the services sector, the PMI numbers for July underscore a powerful message: there is opportunity in momentum. Digitalisation, remote working, and international connectivity are pushing even small service providers into bigger markets.

However, to truly capitalise on this moment, MSMEs will need to focus on:

• Efficiency and scalability to handle increasing work volumes

• Digital onboarding and client servicing to reach new customers

• Cost control mechanisms to counter input inflation

• Delayed payment management and cash flow discipline

The good news? Many Indian MSMEs are already adapting. From cloud-based operations to AI-backed client servicing, the modern MSME is more agile and ambitious than ever before.

Final Thought: The Services Sector Is Open for Business—Are You Ready?

With a strong July performance, India’s services economy continues to open doors for small businesses. Whether you're a bootstrapped startup, a local professional firm, or an export-oriented enterprise, the PMI data confirms the market is moving—and fast.

For MSMEs looking to scale or tap new customers, this might be the time to lean in. The opportunities are not just out there—they're being created by the ecosystem itself. All that's left is to be ready for them.