Amid an uptick in scores of economic indicators, India’s services sector lost momentum in July even as it remained in the expansion zone for the 12th straight month. The seasonally adjusted S&P Global India Services PMI Business Activity Index fell from 59.2 in June to 55.5 in July, the slowest growth rate in four months. The creators of the index attributed the fall in PMI to “demand somewhat curtailed by competitive pressures”, elevated inflation and an unfavourable weather.
The services activity, as gauged by PMI, had expanded at the fastest pace in 11 years in June 2022, reflecting robust demand conditions. Manufacturing activities, measured by a comparable yardstick, scaled an eight-month peak in July, as new order intakes rose substantially, recovering the growth momentum lost in June.
As per the PMI survey, service providers that reported higher sales in July mentioned favourable demand conditions and fruitful advertising.
Pollyanna De Lima, economics associate director at S&P Global Market Intelligence, said the subtle easing in cost inflationary pressures to a five-month low was also welcomed by services firms struggling to preserve margins and contributed to a softer rise in prices charged. Yet, Lima said, survey participants again reported considerable strain from food, fuel, input, labour, retail and transportation costs.
Sector experts, meanwhile, provide an optimistic outlook. As reported by FE recently, Services Export Promotion Council (SEPC) chairman Sunil Talati believes that a sharp slowdown in growth or recession in advanced economies may brighten the prospects for Indian services exporters, as these countries tend to start diverting a larger number of orders to cheaper destinations to cut down on costs.
However, in July, the domestic market remained the key source of sales growth as international demand for Indian services worsened further, the survey said.
Meanwhile, business sentiment in the service economy was subdued in July as only 5% of companies forecast output growth in the year ahead, while 94% firms predict no change in business activity from present levels.
On the prices front, services companies reported a further increase in their average expenses during July, with food, fuel, materials, staff, retail and transportation cited as the key sources of inflationary pressures. Input costs rose sharply, though at the slowest pace in five months.
“The subtle easing in cost inflationary pressures to a five-month low was also welcomed by services firms struggling to preserve margins and contributed to a softer rise in prices charged. Yet, survey participants again reported considerable strain from food, fuel, input, labour, retail and transportation costs,” Lima said.
On the jobs front, July data showed a negligible increase in services sector employment across India. The rate of job creation was fractional and broadly similar to June. The vast majority of firms left payroll numbers unchanged amid a lack of need to raise workforces.
Meanwhile, the S&P Global India Composite PMI Output Index — which measures combined services and manufacturing output — fell from 58.2 in June to 56.6, highlighting the slowest increase since March.
(With PTI inputs)