India’s service sector growth rises to a five-month high in August

New Delhi: India’s services sector growth surged to a five-month high in August due to a quicker upturn in activities and higher business growth, according to a business survey released on Wednesday.

Meanwhile, payroll numbers rose solidly as companies remained upbeat about the economic outlook amid a slowdown in output charge inflation, which was helped by cost pressures retreating to their lowest in four years, the survey noted.

Output charge or price inflation is a measure of how much prices change for products as they leave the factory and before they are sold to retailers and wholesalers. It can be a leading indicator of possible changes in consumer price inflation.

The HSBC India Services Purchasing Managers’ Index (PMI), compiled by S&P Global, rose to 60.9 in August, up from 60.3 in July, and from 60.5 in June.

The index had reached a high of 61.8 in January.

The PMI reading has remained above the 50-mark, which separates expansion from contraction, for 35 consecutive months.

In comparison, India’s manufacturing activity eased to a three-month low in August amid a moderate increase in new business and production.

The HSBC final India Manufacturing Purchasing Managers Index (PMI), compiled by S&P Global, came in at 57.5 in August, down from 58.1 in July.

The figure stood at 58.3 in June.

“At 60.9 in August, the seasonally adjusted HSBC India Services Business Activity Index was inside expansion territory for the thirty-seventh straight month,” the survey said.

“Moreover, rising from 60.3 in July, the headline figure indicated the strongest rate of expansion since March and one that was well above its long-run average. According to panel members, growth was underpinned by productivity gains and positive demand trends,” it added.

Sustained growth momentum

India’s services sector, one of the world’s fastest-growing, accounts for more than half of the country’s gross domestic product (GDP).

India’s GDP expanded at a blistering 8.2% in 2023-24, ably supported by January-March quarter growth of 7.8%, better than the Reserve Bank of India’s revised GDP growth forecast of 7% for the fiscal year.

However, India’s economy grew 6.7% in the April-June quarter, marking the slowest pace in five quarters, following a 7.8% expansion in the previous quarter, according to data released by the statistics ministry last week.

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Meanwhile, the HSBC India Composite Output Index remained at 60.7 in August, similar to July, falling below June’s 60.9 for a second successive month. That said, this index has remained above the critical 50 threshold for 36 months, indicating sustained strong growth momentum.

“The Composite PMI for India continued to show strong growth in August, driven by accelerated business activity in the service sector, which experienced its fastest expansion since March. This growth was largely fuelled by an increase in new orders, particularly domestic orders,” said Pranjul Bhandari, chief India economist at HSBC.

“Employment levels remained robust, though there was a slight decrease in the pace of hiring compared to July. On a positive note, input costs rose at their slowest pace in six months, with both the manufacturing and service sectors exhibiting the same pattern. Consequently, output price inflation receded in August,” Bhandari added.

Bhandari said the outlook for the Indian private sector over the next year has moderated, reaching its lowest level in 15 months due to competitive pressure, although the future output index remained above the long-term average.

The future output index in the Purchasing Managers' Index survey is an indicator of whether output levels will be higher, lower, or the same as current levels in 12 months.