India’s services sector growth falls in August

Growth of services sector, which accounts for more than half of India’s GDP, declined on a month-on-month basis in August after hitting a 13-year high in the previous month even though exports hit record high on the back of robust foreign demands, an industry survey conducted by S&P Global showed.

Purchasing Managers’ Index (PMI) for services declined to 60.1 in August from 62.3 in July. Though, on a month-on-month basis there is decline, the growth in the sector remains robust signalling good GDP growth numbers in the second quarter of the fiscal.

Robust services sector growth led to 7.8% year-on-year expansion in India’s gross domestic product (GDP) in April-June quarter, as per data released by the National Statistical Office (NSO) recently.

The PMI has remained above the 50-mark since August 2021, the longest such stretch since August 2011. PMI print above 50 indicates growth in the sector while below 50 shows contraction.  

As per the survey conducted by rating agency S&P Global, in August services firms indicated the sharpest upturn in new export business since the series started in September 2014. The export growth was led by Asia Pacific, Europe, North America and the Middle East.

“This spike in international demand supported one of the best sales performances recorded over the past 13 years, and acted as a catalyst for firms to expand their workforces as well as output,” said Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence.

Total new business increased for the 25th month in a row. Advertising and robust demand for services were among the reasons listed for growth. Although softer than in July, the overall expansion in sales was one of the strongest seen in 13 years.

PMI is a survey-based economic indicator compiled by S&P Global. Services PMI is based on the responses of around 400 service firms from across sectors including finance, insurance, real estate, transport, communication and business services.

Indian services firms managed to secure a healthy number of new business in August despite hiking their charges. August saw the overall rate of output price inflation quicken to the highest level in over six years.

“Anecdotal evidence indicated that robust demand conditions facilitated the passing on of cost increases to clients,” S&P Global noted in the report.

Hiring activity across India’s service economy continued to expand halfway through the second fiscal quarter. Survey participants reported a blend of permanent and temporary staff recruitment on both part- and full-time bases. The rate of job creation was moderate, but the strongest seen since last November, it added.

On the future outlook, the overall level of positive sentiment climbed to its highest in the calendar year-to-date. Majority of the firms that participated in the survey believed that output would remain on an upward growth path over the course of the coming 12 months.

Advertising, demand strength, plans to price competitively and a healthy number of client enquiries all boosted optimism in August, the report noted.