Services sector in India sees surge in new business
Growth in India’s services sector accelerated in April, as strong demand resulted in the fastest increase in new business in almost 13 years, the latest S&P survey has found.
The seasonally adjusted S&P Global India Services PMI Business Activity Index rose from 57.8 in March to 62.0 in April, representing the fastest growth in output since mid-2010, in spite of the high rate of inflation hitting input costs.
For the 21st straight month the headline figure was above the neutral 50 threshold; a score above 50 represents growth, while a score below 50 signals a contraction.
“India’s service sector posted a remarkable performance in April, with demand strength backing the strongest increases in new business and output in just under 13 years,” said Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence. “Finance and insurance was the brightest spot, topping the sectoral growth rankings for both measures.”
Those companies monitored for the survey reported a growth in international demand for Indian services in April. New export business expanded for the third month in succession and at the fastest pace over this period.
However, input costs rose at the quickest pace in three months during April.
According to survey food, fuel, medicine, transportation and wages were the main sources of inflation. Consumer services recorded the fastest upturn in average expenses.
The combination of rising input costs and demand resilience prompted services companies to increase their prices in April. “The rate of charge inflation was marked and the strongest in 2023 so far,” the survey said.
On the employment front, staff levels in the service sector increased only marginally at the start of the first fiscal quarter, in spite of the increase in demand. While some companies increase staffing levels as demand grew, the vast majority left levels unchanged.
“One area of weakness highlighted in the latest results was the labour market. Despite the substantial pick-up in sales growth and improved business sentiment towards the outlook, the increase in employment seen in April was negligible and failed to gain meaningful traction,” Lima said.
The survey said increased marketing activity, competitive pricing and an increased focus on customer relations boosted business confidence in April.
“Close to 22% of companies forecast growth of business activity over the course of the coming 12 months, compared with 2% that anticipate a reduction,” the survey said.
Meanwhile, the S&P Global India Composite PMI Output Index, which measures combined services and manufacturing output, rose from 58.4 in March to 61.6 in April, its highest mark since July 2010.
Despite the substantial upturn in sales, job creation across the private sector remained subdued. Rates of employment were broadly similar at manufacturing firms and their services counterparts.
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 consists of companies from a variety of sectors and company workforce size, based on contributions to GDP.
Manufacturing firms increase output
India’s purchasing managers’ index (PMI) for manufacturing in April increased to a four-month high of 57.2 from 56.4 in March, driven by new orders and output, according to a second survey by S&P Global.
“Several indices pointed to more favourable operating conditions across India’s manufacturing industry in April. Factory orders and production rose at the strongest rates in 2023 so far, companies stepped up input purchasing owing to stock-replenishment efforts,” the survey said.
The March data pointed to a consecutive 22-month rise in manufacturing production.
The survey said the input cost inflation accelerated again, but “the latest upturn was mild by historical standards and the output charges increased at a moderate rate that matched its long-run average”.
It said: “Although manufacturers signalled higher operating costs in April – linked to fuel, metals, transportation and some other raw materials – the overall rate of inflation remained below its long-run average despite quickening since March,” it said.
