Services index reveals sharp sectoral differences: India’s services sector continues to expand, but the latest official figures reveal substantial differences in the performance of individual industries. Retail trade, banking, insurance and real estate recorded double-digit growth in August 2026, while aviation and entertainment contracted. The findings come from the National Statistical Office’s trial Index of Services Production (ISP), released on October 29.
Of the 19 services sub-sectors covered by the index, 17 recorded year-on-year growth in August. Thirteen grew at double-digit rates, compared with 10 in July. The figures suggest that the expansion extends across several industries, although the continued weakness in aviation and the contraction in entertainment point to uneven demand and cost pressures.
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Services account for more than half of India’s gross value added (GVA) and have been a major contributor to economic growth since the pandemic. Their performance will therefore have a bearing on GDP growth in the second quarter of FY27. The new index, however, does not yet provide an aggregate growth rate for the services sector. Its sub-sectoral readings cannot be directly compared with quarterly GVA growth.
Retail and hospitality sustain services growth
Retail trade recorded the fastest expansion among the 19 sub-sectors, growing 19.9% in August against 18.5% in July. Its index stood at 139.2, substantially above the 2024-25 base-year level. Accommodation and food services grew 11.9%, with an index reading of 145.3, the highest among the industries covered.
The figures indicate continued strength in consumer-facing services. Wholesale trade, however, grew at a slower 10.2%, suggesting that activity across different segments of trade is expanding at varying rates.
Retail growth is particularly relevant because the sector includes businesses of different sizes and serves consumers across income groups. Yet the index largely captures formal economic activity. Growth in GST-based measures cannot establish how much of the expansion comes from smaller informal establishments or whether the benefits are evenly distributed among households.
Higher spending by affluent consumers can coexist with weak demand among lower-income households. Food, housing and education expenses continue to compete for a substantial share of household budgets. The ISP provides useful evidence of business activity, but consumption surveys and household income data are needed to assess whether rising services output reflects a broader improvement in living standards.
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Banking, insurance and real estate record expansion
Financial and business services also performed well in August. Banking grew 14.9%, insurance 16.5%, and real estate services 17.6%. Professional, scientific and technical services, including research and development, expanded 14.2%, while IT and computer-related services recorded growth of 13.8%.
These industries have become increasingly important as businesses expand their use of financial services, technology and specialised professional support. Greater use of digital payments and formal financial channels has also increased the volume of transactions captured by administrative records.
The figures nevertheless require careful interpretation. Higher banking activity may reflect greater financial inclusion and stronger credit demand. It does not, by itself, establish whether lending is productive or whether household indebtedness is becoming a concern. Similarly, an increase in real estate services indicates greater measured activity in the property market, without necessarily implying better housing affordability.
The distinction is important for assessing the quality of services-led growth. Rising output in finance and property-related businesses can strengthen GVA while leaving questions about household welfare unanswered. These questions need to be examined alongside credit quality, household debt, property prices and income trends.
Logistics improves while aviation contracts
Postal and courier services grew 13.2% in August, accelerating from 8.7% in July. Warehousing and transport-support activities expanded 11.2%, while water transport growth improved to 9.5%.
The expansion in courier and warehousing services is consistent with increasing demand for organised logistics and faster deliveries. E-commerce may be contributing to this growth, although the index alone cannot establish the extent of its contribution.
Other transport segments presented a weaker picture. Railway transport growth slowed to 3.7% from 7.5% in July, while road transport eased to 9.4% from 9.9%. The divergence suggests that the recovery in logistics and mobility is proceeding at different rates across transport modes.
Aviation presents a more immediate concern. Air transport output contracted 9.6% year-on-year in August, following an 8.4% decline in July. The index stood at 89.2, the lowest reading among the 19 sub-sectors. It was also the fifth consecutive month in which the index remained below the base-year level of 100.
Fuel costs, currency movements and airfares are important influences on airline economics and passenger demand. Higher operating costs can translate into increased fares and weaker discretionary travel. However, the ISP figures do not establish how much of the August contraction was caused by these factors. Passenger traffic, capacity and airfare data would be needed to identify the reasons.
Arts, entertainment and recreation services also contracted, by 4.7%, after recording growth of 1.7% in July. The decline deserves attention because these activities depend partly on discretionary consumer spending. The two months of data are insufficient to establish a sustained decline in consumer demand.
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New services index has important limitations
The introduction of the ISP addresses a longstanding weakness in India’s economic statistics. Industrial activity has been monitored through the Index of Industrial Production for decades, while comparable monthly information on services has remained limited.
The new measure uses 2024-25 as its base year and covers 19 sub-sectors accounting for approximately 60% of services GVA. August is only the fifth monthly release of the trial series, which began with data for April 2026.
Its coverage is far from comprehensive. Education, healthcare and public administration are among the important activities excluded from the present framework. In an approach paper released on October 6, the Ministry of Statistics and Programme Implementation proposed extending coverage to these areas. Together, they account for nearly 21% of services GVA. Their inclusion could raise the index’s coverage to approximately 80%.
The ISP draws on administrative records for activities such as banking, insurance, railways and aviation, and uses GST data for several other services. These sources make frequent measurement possible, but leave substantial parts of the informal economy outside the index. Moreover, the government has acknowledged that the estimates for railways, banking and insurance are provisional and subject to annual revision.
The trial series is therefore useful for identifying differences in industry performance, but it is too early to treat it as a comprehensive measure of services growth. The absence of an aggregate index also limits its value for making projections about quarterly GDP.
MoSPI plans to introduce an overall ISP after improving coverage and assessing the reliability of the sub-sectoral indices. That work deserves priority. The August figures have already demonstrated the value of monthly services data by identifying weaknesses in aviation and entertainment alongside strong growth in retail and financial services. A broader and more reliable index would help policymakers assess such divergences before they become visible in quarterly national accounts.