New business gains and low input cost inflation pushed services sector activities growth to a 12-year high in February, even as capacity pressures remained mild and jobs rose only marginally, according to a widely regarded survey.
The rebound assumes importance as the second advance estimate of GDP for FY23 showed that annual growth of gross value added (GVA) in ‘trade, hotels, transport, communication and broadcasting’, the largest services sector, decelerated from 25.7% in Q1 to 15.6% in Q2 and 9.7% in Q3.There was also a deceleration in financial services GVA, with the year-on-year growth declining from 8.6% in Q1 to 7.1% in Q2 and further to 5.8% in Q3.
The seasonally adjusted S&P Global India Services PMI Business Activity Index rose to 59.4 in February from 57.2 in the previous month. The index had declined sequentially from 58.5 in December. The uptick was helped by a substantial moderation in cost pressures — input prices increased at the slowest pace in nearly two-and-a-half years — which ensured output charge inflation softened to a 12-month low.
“The service sector more than regained the growth momentum lost in January, posting the sharpest expansion in output for 12 years as demand resilience and competitive pricing policies underpinned the joint best upturn in sales over the same period,” Pollyanna De Lima, economics associate director at S&P Global Market Intelligence, said.
At the composite level, private sector output in India increased for the nineteenth successive month in February, with the S&P Global India Composite PMI Output Index rising from 57.5 in January to 59. Growth was stronger in services than in manufacturing. Services firms also recorded a faster upturn in new business than their manufacturing counterparts. At the composite level, sales expanded at the joint-quickest rate in 11 years.
New orders placed with services providers rose further in February, with several firms suggesting that competitive pricing boosted sales. Consumer services was the best-performing area in February, registering the fastest increases in new orders and business activity of the four monitored sub-sectors.
Only 4% of services companies transferred cost increases to their clients, while the vast majority opted to leave selling prices unchanged. Subsequently, the overall rate of charge inflation eased to a 12-month low. “It seems that hiring growth was also dampened by a lack of confidence in the business environment. The degree of optimism recorded in February was the lowest for seven months and below the historical trend as some companies doubted demand would remain this resilient. Others displayed concerns surrounding fierce competition for new work,” Lima said.