India’s services activity growth eased to a three-month low in June while the sector’s Purchasing Managers’ Index (PMI) declined to 58.5 from 61.2 in May 2023, slightly below the Reuters poll prediction of 60.2, according to the data released by S&P Global. Despite falling from May, the latest data was consistent with a sharp pace of growth. The latest reading also marked the 23rd successive months of growth with headline figure above the neutral 50 threshold, supporting a further sharp upturn in business activity. While a print above 50 means expansion, a score below 50 shows contraction.
The new export business also grew for the fifth successive month, but modestly and slower than in May. According to survey members, the upturn stemmed from ongoing increase in new business, a healthy demand environment and marketing initiatives. Service providers noted a sharp and quicker expansion in intakes of new business at the end of the first fiscal quarter. “Demand for Indian services continued to surge higher in June, with all four monitored sub-sectors registering quicker increases in new business inflows,” said Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence. “This bullish pick-up in growth momentum supported a further sharp upturn in business activity and encouraged another uplift in employment figures, boding well to near-term growth prospects. Job creation in fact also reflected positive forecasts among companies about the year ahead outlook for output,” he added.
On the pricing front, input cost inflation accelerated to a near six-month high due to higher costs of food and wages. The survey released by S&P Global showed a notable increase in prices charged for the provision of services in India. The pass-through of greater input and staff costs to clients was the primary factor highlighted by firms for the latest upturn in charges. “Charge inflation showed some signs of stickiness, picking up only slightly from May but nevertheless reaching a near six-year high,” Lima said, while adding that combined with manufacturing, output prices across the private sector increased at the sharpest pace in over a decade.
Further, Lima stated that the latest PMI results for output charges coupled with upside risks to food prices suggest that interest rates are highly unlikely to be reduced as 2023 progresses. The Reserve Bank of India Governor Shaktikanta Das, earlier last month, had said that the Monetary Policy Committee has decided to keep the key policy repo rate unchanged at 6.5 percent.
The survey further noted that predictions of further demand strength, favourable market conditions and customer relations boosted business confidence in June.
Further, the S&P Global India Composite PMI Output Index — which measures combined services and manufacturing output — fell from 61.6 in May to 59.4 in June. “Amid softer increases in both manufacturing production and services activity, there was a slower expansion in Indian private sector output during June,” it said. The survey added that despite falling from May, the S&P Global India Composite PMI Output Index was still indicative of a sharp rate of growth.