Services Sector Flags Rebound In August

India’s dominant services industry grew faster than expected in August amid favourable demand conditions and some easing in cost pressures. The S&P Global India Services Purchasing Managers’ Index or PMI index rose to 57.2 in August from four-month low of 55.5 in July, surpassing the 55.0 estimate in a Reuters poll. It remained above the 50-mark separating growth from contraction for a 13th straight month. The survey showed that a stronger expansion in new business encouraged firms to hire at the quickest pace in more than 14 years.

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Pick-Up In Growth:

“Indian services activity rose strongly midway through the second fiscal quarter, with the pace of expansion recovering some of the ground lost in July. The pick-up in growth stemmed from a rebound in new business gains as firms continued to benefit from the lifting of COVID-19 restrictions and ongoing marketing efforts,” said Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence. “While the rate of charge inflation was broadly similar to July, there was a considerably softer upturn in input costs. The latter rose at the weakest pace in close to a year. There were other positives in the latest results. Business confidence strengthened substantially, reaching its highest since May 2018, while employment rose at the fastest pace in over 14 years,” she said.

Areas Of Rebound:

Among the sectors, “finance and insurance was the brightest area of the service economy in August, leading with regards to growth of sales and output,” the economist said. India’s economy expanded at its fastest annual pace in a year during the April-to-June quarter, driven by strong growth in services and manufacturing activity. But some economists say that the momentum could sag over the coming quarters as higher interest rates, elevated price pressures, and growing concerns about a global recession pose significant risks to the economy.

Future Prospects:

Some economists say that the momentum could sag over the coming quarters as higher interest rates, elevated price pressures, and growing concerns about a global recession pose significant risks to the economy. The survey also showed that services companies expect output growth over the coming 12 months, with sentiment rising to its highest level in over four years. “Outstanding business volumes at Indian services companies continued to increase in August, taking the current sequence of accumulation to eight months. The rate of expansion was solid and the fastest in a year-and-a-half,” the survey said.