Services sector growth rebounds on surge in export orders

India’s Purchasing Managers’ Index (PMI) for services increased marginally to 60.5 in June from a five-month low of 60.2 recorded in May.
Last Updated : 03 July 2024, 23:16 IST

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New Delhi: After sliding to a five-month low in May, India’s services sector growth picked up in June, led by a record surge in international orders, an industry survey conducted by S&P Global showed on Wednesday.

India’s Purchasing Managers’ Index (PMI) for services increased marginally to 60.5 in June from a five-month low of 60.2 recorded in May. “June data indicated a sustained upturn in Indian service sector output, with the rate of expansion quickening from May’s five-month low amid a stronger rise in new orders and an unprecedented expansion in international sales,” S&P Global noted in its monthly report.

The services PMI is based on a survey of around 400 services sector companies. A PMI print above 50 indicates growth in the sector while below 50 shows contraction. The services PMI has been above 50-mark for nearly three years.

In June, a substantial support to the growth in the services PMI came from increased orders from overseas markets. “Asia, Australia, Europe, Latin America, the Middle East and the United States were all cited as sources of new work from abroad,” the rating agency said.

Positive client appetite led to service providers in India to recruit additional staff and the pace of job creation in June was the strongest in 22 months. There were short-term as well as permanent hiring across junior, medium and senior-level positions.

Due to higher food, fuel and labour costs, service providers recorded a moderate increase in their average expenses. The pace of inflation in June was the weakest in four months. Subsequently, selling prices also rose at the slowest pace since February.

“Input costs rose at a moderate pace, resulting in a
softer uptick in output charges in June,” said Pranjul Bhandari, Chief India Economist
at HSBC.

Additional recruitment added to firms’ labour expenses and contributed to another increase in average cost burdens.

However, business confidence slipped to an 11-month low owing to concerns surrounding market uncertainty and competition. Only 23% of the survey companies expressed optimism.

“Overall, service providers remain confident about the year-ahead business outlook, although the level of optimism moderated sharply during the month,” said Bhandari.

The Composite PMI also accelerated in June, supported by greater inflows of new orders. Manufacturing firms contributed more to the expansion than services firms. Manufacturing PMI increased by 0.8 percentage point month-on-month in June while the increase in services PMI stood at 0.3 percentage points.

Published 03 July 2024, 23:16 IST

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