Services sector growth drops; inflation at 12-year high

Gyanendra Keshri: India’s services sector growth declined marginally in November when compared with the previous month, due to drop in growth of new orders and output, while the sectoral inflation soared to the highest level in nearly 12 years, as per an industry survey report released by S&P Global on Wednesday.

India’s Purchasing Managers’ Index (PMI) for services declined to 58.4 in November from 58.5 recorded in the previous month. In September it was at a 10-month low of 57.7. The PMI print above 50 indicates growth in the sector while below 50 shows contraction.

“Total sales increased at a softer pace than in October, but the respective seasonally adjusted index was nevertheless more than four points above its long-run average and consistent with robust growth,” S&P Global noted in the monthly report.

The report further noted that high sales added to firms' capacity pressures subsequently boosting job creation. Overall employment rose at the fastest pace seen since the inception of the survey in December 2005. There was robust hiring of permanent as well as temporary staff.

The downside to this unprecedented upturn in job creation was an intensification of price pressures. Input costs rose to the sharpest pace in 15 months, while selling prices increased at the fastest rate in close to 12 years.

“The hiring surge reflected the sector’s improving business confidence, growing new orders, and vigorous international demand. At the same time, high food and labour costs drove up input and output prices to their fastest rates in 15 months and nearly 12 years respectively,” said Pranjul Bhandari, Chief India Economist at HSBC.

Intensification of cost pressures prompted service providers to lift their own charges in November. On some occasions, companies suggested that hikes were supported by rosy demand, the report noted.

Service providers were more confident regarding the year-ahead outlook for business activity. Business confidence reached its highest level since May, boosted by predictions of continued demand strength and expectations that marketing efforts will drive new business, the report added.