India’s services sector growth climbs to 13-year high

Demand for Indian services hit a 13-year high during July, with around 29% of respondent to the monthly S&P Global survey reporting an increase in new business.

The seasonally adjusted S&P Global India Services PMI Business Activity Index rose from 58.5 in June to 62.3 in July, signalling the sharpest increase in output since June 2010.

For the 24th straight month, the headline figure was above the neutral 50 threshold. In the Purchasing Managers’ Index (PMI), a score above 50 means expansion while a score below 50 denotes contraction.

The survey pointed to a big improvement in demand and a pick-up in international sales.

“The resilience of the service sector underscores its vital role in fuelling India’s economy, with the PMI results for July so far pointing to a notable contribution from the sector to overall GDP for the second fiscal quarter,” according to Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence.

According to survey members, the upturn was largely attributed to demand strength and new business gains.

She added: “The broad increases in sales across the domestic and international markets are particularly welcoming news, especially in light of the challenging global economic scenario. Firms noted a widespread upturn in services exports to several nations including Bangladesh, Nepal, Sri Lanka and the UAE.”

The survey found that cost pressures intensified, with companies citing greater food, labour and transportation costs. Despite the rise in costs, price rises did not reflect the pressure as firms were cautious about their pricing strategies.

“Looking at PMI price indices in recent months, it seems that competitive advantage continued to support demand for Indian services, with increases in output prices here modest relative to several other nations,” Lima said.

“Although input cost inflation ticked higher in July, service providers were again cautious in their price-setting decisions amid efforts to not deter sales,” Lima added.

On the employment front, companies continued to recruit, hiring a combination of part-time, full-time, permanent and temporary staff.

Looking ahead to the next 12 months, the outlook for business activity, service providers on average were optimistic. Growth expectations stemmed from forecasts of demand strength and marketing initiatives.

Meanwhile, the S&P Global India Composite PMI Output Index – which measures combined services and manufacturing output – rose from 59.4 in June to 61.9 in July.

“July data signalled a substantial increase in private sector activity across India, with the rate of expansion quickening to a 13-year high,” the survey said.

The S&P Global India Services PMI is compiled by S&P Global from responses to questionnaires sent to a panel of around 400 service sector companies. The panel is stratified by detailed sector and company workforce size, based on contributions to GDP.


Small rise in inflation forecast

India’s central bank has raised its inflation projection marginally to 5.4 % due to spike in food prices, while retaining the GDP growth projection for current fiscal year at 6.5%.

The Reserve Bank of India’s (RBI) Governor Shaktikanta Das said domestic economic activity “is maintaining resilience”, adding that “the buoyancy in services and consumer optimism should support household consumption”.

He said: “Headwinds from weak global demand, volatility in global financial markets, geopolitical tensions and geo-economic fragmentation, however, pose risks to the outlook.”

Das said the bank’s projections show real GDP growth for 2023-24 is projected at 6.5%, with Q1 at 8%; Q2 at 6.5%; Q3 at 6%; and Q4 at 5.7%.

On inflation, the governor said the spike in vegetable prices would exert sizeable inflationary pressures. He said: “This jump is, however, likely to correct with fresh market arrivals,” he said.

Consumer Price Index (CPI) based retail inflation is projected at 5.4% for 2023-24, the governor said. The CPI for Q2 has been projected at 6.2%, Q3 at 5.7% and Q4 at 5.2%, with risks evenly balanced.

Headline CPI inflation picked up from 4.3 % in May to 4.8 % in June.