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Business News/ Economy / India's services growth picks up in March on robust demand
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India's services growth picks up in March on robust demand

The upturn was largely attributed to healthy demand conditions, efficiency gains and positive sales developments.

In March, service providers increased hiring at the fastest pace since August 2023 to expand production capacity. (Image: Pixabay)Premium
In March, service providers increased hiring at the fastest pace since August 2023 to expand production capacity. (Image: Pixabay)

New Delhi: India's services sector growth surged in March, rebounding from a dip in February, amid strong sales and business activity, according to a private survey on Thursday.

The HSBC India Services Purchasing Managers' Index (PMI), compiled by S&P Global, climbed to 61.2 in March from 60.6 in February. The index hit a six-month peak of 61.8 in January. 

The reading has remained above the 50 mark, which separates expansion from contraction, for 32 months.

March's recovery is part of a broader resurgence, with manufacturing PMI also touching a 16-year high of 59.1, fuelled by new orders, an upturn in inventories, and higher job creation.

The March figure beats HSBC’s projection of 60.3, mentioned in its Services PMI Business Activity Index last month.

"March saw one of the strongest expansions in total sales and business activity in close to 14 years, helped by a series record upturn in new export orders," the survey report said.

"The HSBC PMI, compiled by S&P Global, also highlighted increased pressure on the capacity of service providers, which in turn supported the joint-fastest rise in employment since November 2022," it added.

The March report noted that the upturn was largely attributed to healthy demand conditions, efficiency gains and positive sales developments.

While companies signalled a substantial improvement in new order intakes during March, the rate of growth was one of the best since June 2010.

The data also showed that while there is better demand for Indian services from domestic and international sources, the service sector reported gains from geographies like Africa, Asia, Australia, Europe, the Americas, and the Middle East.

"India’s services PMI rose in March, following a small dip in February, on the back of strong demand that spurred sales and business activity. Service providers increased hiring at the fastest pace since August 2023 to expand production capacity," Ines Lam, an economist at HSBC, said in the report.

"Input costs rose at a faster rate, yet service providers were able to broadly maintain margins by charging higher output prices," Lam added.

According to the survey, while there were quicker increases in output and sales across each of the four broad areas of the service economy monitored by the survey, finance and insurance topped the growth rankings in both cases.

"Amid reports of higher labour and material costs, there was a further increase in overall expenses at services firms," the survey said.

"The rate of input price inflation was marked, faster than that seen in February and above its long-run average," it added.

India's services sector—among the world's fastest-growing—accounts for more than half of the country's gross domestic product (GDP). The robust performance in recent months is expected to help the country achieve its targeted economic growth for the fiscal year that ended on 31 March.

The Reserve Bank of India in February raised its GDP growth forecast for FY24 to 7% from the previous 6.5%, while the statistics ministry last week raised its estimate to 7.6% in its second revised estimate, up from 7.3% in the first advance forecast.

Recent government data showed that the Indian economy soared ahead in the December quarter (the third quarter of FY24) with a surprise growth of 8.4%, belying fears of tempering.

The services PMI, compiled from questionnaire responses from approximately 400 service sector companies, serves as a crucial economic health indicator.

Meanwhile, the HSBC India Composite PMI Output Index rose to 61.8 in March from 60.6 in February, highlighting the second-strongest upturn in over 13 and half years (behind July 2023).

"Demand strength in India exacerbated price pressures. Input costs across the private sector rose markedly, and at a stronger rate than in February," the survey said.

"Services firms continued to see a sharper increase in expenses than their manufacturing counterparts," it added.

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ABOUT THE AUTHOR
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: 04 Apr 2024, 12:38 PM IST
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