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Business News/ Economy / Service PMI falls to lowest since March as demand slows

Service PMI falls to lowest since March as demand slows

The S&P Global India Services Purchasing Managers’ Index (PMI) fell to 58.4 in October from 61 in September.

The cooling of service sector growth follows slowing manufacturing.Premium
The cooling of service sector growth follows slowing manufacturing.

India’s services sector growth slowed to a seven-month low in October due to low demand and higher costs, a private survey said on Friday.

The S&P Global India Services Purchasing Managers’ Index (PMI) fell to 58.4 in October from 61 in September.

The figure had stood at 60.1 in August, 62.3 in July, 58.5 in June, 61.2 in May, 62 in April and 57.8 in March.

A Reuters poll had forecasted PMI at 60.5 for October.

India’s services PMI has held firm in the expansion zone every month since August 2021, its longest stretch since August 2011.

A reading of 50 separates expansion from contraction.

Service PMI GFX
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Service PMI GFX

The cooling of service sector growth follows slowing manufacturing, which in October grew at the slowest pace in eight months, dragged down by shrinking demand for consumer goods, fewer new orders and rising costs.

The slowing down of both manufacturing and services could pose a challenge to India meeting its targeted economic growth, which the Reserve Bank of India has pegged at 6.5% for FY24.

“The Indian service economy continued to register impressive growth, despite the increases in business activity and new work intakes softening from September’s over 13-year highs," said Pollyanna De Lima, economics associate director at S&P Global Market Intelligence.

“Exports were an area of particular strength in October, with new business gains from Asia, Europe and the US boosting growth to its second-highest in the series over nine-year history," she added.

Although new business bagged by y services firms, an indicator of demand, rose for the 27th month in a row in October, it was the weakest since May.

Fierce competition and subdued demand for certain types of services dampened overall expansion.

The Future Activity Index fell by more than five points in October, signalling some loss of confidence surrounding the outlook for services output amid rising inflation expectations, it added.

India’s services sector, one of the fastest growing in the world, contributes to over 50% of its GDP.

On the brighter side, October saw the second-fastest upturn in international orders placed with Indian services firms since the series started in September 2014, with gains from clients in Asia, Europe and the US.

“Inflationary forces in the Indian service sector intensified, primarily as a result of surging food, fuel and staff costs. Although survey participants passed these additional cost burdens on to clients, permitted by demand strength, the rise in charges could have been the trigger of the deceleration in sales growth," said De Lima.

“Moreover, a pick-up in inflation expectations in October dampened business confidence," she added.

The S&P Global India Services PMI is compiled from responses to questionnaires sent to about 400 service sector companies.

The PMI data is an indicator of the health of the economy.

According to government data, the Indian economy expanded by 7.8% in the first quarter of the current fiscal year on higher government and private capital expenditure and strong services growth.

The RBI has projected a GDP growth of 6.5% for the second quarter, which aligns with the central bank’s full-year growth forecast for FY24.

On 1 November, S&P Global released its survey on India’s manufacturing PMI, which grew at its slowest pace in eight months at 55.5 due to a drop in new orders and higher cost pressures.

The composite PMI, consisting of manufacturing and services indices, fell to 58.4 in October from 61 in September, indicating the weakest expansion rate since March.

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Rhik Kundu
Rhik writes about the Indian economy and its crucial indicators. He is constantly navigating corporates, decoding policies, and dabbling with everything in between.
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Published: 03 Nov 2023, 02:31 PM IST
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