Services Growth Declines Sharply to 9.5% in May, Experimental Index Shows

India's services sector growth is estimated to have fallen sharply to about 9.5% in May, from around 20.5% in April, according to calculations based on experimental data from the Ministry of Statistics and Programme Implementation (MoSPI). The data, released under the new Index of Services Production (ISP), covers 19 sub-sectors and is still in a trial stage, with MoSPI not providing an official overall growth figure.

The ISP, introduced earlier this month as the services counterpart to the Index of Industrial Production (IIP), aims to fill a key gap in India's official statistics by providing a monthly measure of services output. While the headline growth rate is significantly lower than April's figure, it remains nearly double the 5% expansion recorded by the industrial sector in May, as per the IIP.

DK Srivastava, Chief Policy Advisor at EY India, noted that the combined average growth for the first two months of the quarter (April and May) stands at 15.3% for services, indicating robust momentum for the first quarter of 2026-27.

Among sub-sectors, 'accommodation and food' led with a growth of 27.4% in May, though this was a slowdown from 37.2% in April. Seventeen of the 19 sub-sectors recorded weaker year-on-year growth in May compared to April. The two exceptions were railway transport, which grew 3.4% after a contraction of 0.4% in April, and air transport, which shrank by 2.8% in May—an improvement from a 13.9% contraction in April. The decline in air transport activity has been attributed to the ongoing conflict in West Asia, leading to higher fuel costs and fares.

IT and computer-related services, which carry the highest weight in the ISP at 22.47%, saw their growth decline to 10.3% in May from 15.2% in April. Overall, 16 of the 19 sub-sectors grew in May, with eight registering double-digit growth. In April, 17 sub-sectors had grown, with 14 posting double-digit rates.

The ISP currently covers about 60% of the services sector, excluding health and education as they are exempt from Goods and Services Tax (GST), which forms the basis of the index. Core government activities such as public administration, defence, and non-market activities, as well as the informal sector, are also not included. The index is compiled using GST and administrative data, without imposing additional compliance burdens on companies.

It is important to note that the ISP measures production output, unlike the widely followed S&P Global Services Purchasing Managers' Index (PMI), which is a sentiment-based index tracking month-on-month momentum. India's services PMI rose to 59.8 in May from 58.8 in April, indicating expansion, but does not directly compare with the ISP's year-on-year growth rates.

The experimental nature of the ISP means that the data should be interpreted with caution. MoSPI continues to refine the index, which provides a more comprehensive picture of the services sector that dominates India's economy, contributing over half of the GDP.