India’s services sector expanded for the 31st consecutive month in March 2026 but at its slowest pace in 14 months, with the HSBC India Services PMI Business Activity Index falling from 58.1 in February to 57.5 in March, according to the HSBC India Services PMI released by S&P Global on April 6, 2026. The headline figure, while still comfortably above the expansion threshold of 50 and above the long-run series average of 54.4, signals a meaningful deceleration driven directly by the ongoing West Asia conflict. Simultaneously, input cost inflation surged to a 45-month high, the steepest increase since June 2022, as higher fuel, transport, and logistics costs from the Iran war fed through into service sector pricing.
The data, collected from approximately 400 service sector companies between March 11 and 27, 2026, presents a mixed picture of resilient export demand contrasting with domestic slowdown, strong business confidence contrasting with the sharpest cost pressures in nearly four years.
The Headline Numbers
The HSBC India Services PMI fell from 58.1 in February to 57.5 in March, marking the weakest rate of expansion since January 2025. The reading nonetheless remained well above the long-run series average of 54.4, indicating that the services sector is decelerating rather than contracting.
The HSBC India Composite PMI Output Index, which combines manufacturing and services, fell more sharply from 58.9 in February to 57.0, indicating the weakest rate of expansion in nearly three and a half years. This composite reading represents the broadest measure of India’s private sector output momentum and its decline to a three-and-a-half-year low is the most significant headline number from the March data.
The Iran War’s Direct Fingerprint on the Data
What makes the March PMI data particularly significant for Business Upturn’s coverage is that the report explicitly names the Middle East war as a driver of the slowdown. Panel members, the business owners and managers surveyed by S&P Global, directly cited the detrimental impact of the Middle East war on demand, market conditions, and tourism as a constraint on output growth.
This is not an analyst interpretation layered on top of the data. It is the survey respondents themselves, running businesses across finance, insurance, real estate, transport, information and communication, and consumer services, identifying the Iran war as a direct negative factor in their March trading conditions. The war’s economic fingerprint is now visible in the primary data that central banks, financial markets, and policymakers use to track India’s economic momentum.
Intakes of new work rose at the slowest pace since January 2025, with softer increases in sales noted in three of the four broad service economy categories: Finance and Insurance, Real Estate and Business Services, and Transport, Information and Communication.
The Export Paradox — Record International Demand
The March PMI data contains a striking paradox. While domestic demand slowed to its weakest pace since January 2025, international demand for Indian services surged to near-record levels. All four categories of the service economy recorded quicker expansions in new export orders, with overall growth in foreign sales nearing a series peak. Since the inception of this export orders question in September 2014, a faster increase was only recorded in June 2024. Export gains were noted from Africa, Asia, Australia, Europe, the Americas, and the Middle East.
Pranjul Bhandari, Chief India Economist at HSBC, noted: “Demand remained resilient, led by new export orders, which rose to the greatest extent since mid-2024.”
The export strength amid domestic weakness is consistent with what economists would expect from the Iran war’s impact on India. The conflict has created disruption in competing economies, diverted international business toward more stable markets, and potentially increased demand for Indian services as global companies seek non-Gulf alternatives for certain functions. India’s IT services, business process outsourcing, financial services, and consulting sectors may be benefiting from international clients who are managing their own war-related disruptions.
At the composite level, data implied that the overall sales slowdown was centred on the domestic market as international demand for Indian goods and services improved to the greatest extent in seven months.
The Cost Pressure Alarm
The most alarming data point in the March report is the input cost inflation reading, which rose to its fastest pace in close to four years, specifically the highest since June 2022. The gap between input cost inflation and output price inflation was the widest since July 2023, meaning service companies are absorbing a significant portion of their cost increases rather than passing them fully to customers.
The specific inputs driving the cost surge directly reflect the Iran war’s economic transmission mechanisms. Panel members identified price increases in chicken, cooking oil, eggs, electricity, fish, fruits, fuel, labour, meat, and vegetables since February. The fuel and electricity components are direct pass-through effects from the energy price surge that has accompanied the Strait of Hormuz closure and the broader global energy market disruption since February 28.
Selling charge inflation quickened to a seven-month high in March, indicating that some of the cost pressure is being passed to consumers, contributing to the broader inflation concern that the RBI and Indian government are managing simultaneously with the rupee at record lows and OMC losses mounting.
Services firms reportedly transferred part of their additional cost burdens to clients but continued to absorb some of it. The quickest increases in input costs were seen in Consumer Services, while Finance and Insurance recorded the fastest output charge increases.
The Employment and Confidence Silver Linings
Despite the slowdown in growth and the surge in cost pressures, two data points provide genuine optimism in the March PMI report.
Employment grew for a third consecutive month in March, with the pace of job creation the strongest since mid-2025. Service sector companies are adding workers even as growth slows, which is a signal that businesses remain committed to capacity expansion based on their medium-term demand expectations rather than pulling back in response to the war-related slowdown.
Business confidence strengthened significantly in March, with firms at their most upbeat towards the output outlook in close to 12 years. That is not a misprint. Service sector companies in India are more optimistic about the future than at almost any point in the past decade, even as they face the steepest input cost pressures since 2022 and a war that is directly constraining their current demand. Optimism was pinned on hopes of improvement in demand and market conditions, with advertising and better customer relations also expected to bear fruit.
What the PMI Data Means for RBI Policy
The March PMI data arrives at a critical moment for the Reserve Bank of India’s monetary policy deliberations. The combination of slowing growth, surging input costs, and a record-low rupee puts the RBI in an extremely difficult position. Normally, slowing growth would argue for rate cuts. Surging input costs that are feeding into output price inflation would argue against rate cuts. The rupee at 95 per dollar would argue against rate cuts because lower rates could accelerate capital outflows. And the global rate environment, where the US Federal Reserve is being pushed toward hikes rather than cuts by the Iran war’s inflation impact, limits the RBI’s room to diverge significantly from global rate trends.
The March PMI data confirms what the RBI has been managing since the Iran war began: India’s economy is growing but decelerating, and the cost pressures from the war are building in the system faster than the growth deceleration that would justify monetary easing.
At 57.0 on the Composite PMI, India’s private sector is still expanding at a pace most major economies would envy. But the direction of travel, from 58.9 in February to 57.0 in March, the explicit identification of the war as a growth constraint, and the 45-month high in input costs all point toward a more challenging second quarter of 2026 than India’s economy had been expecting before February 28.
This article is based on the HSBC India Services PMI report for March 2026, released by S&P Global on April 6, 2026. Data was collected from approximately 400 service sector companies between March 11 and 27, 2026. The PMI is a diffusion index where readings above 50 indicate expansion and below 50 indicate contraction. This article is for informational purposes only and does not constitute financial or investment advice.