BackServices sector PMI climbs to an 11-yr high in June
High inflation, however, was a cause of concern, with selling prices rising at the sharpest rate in almost five years in June, as several companies sought to transfer part of their additional cost burdens to clients
PremiumActivity in India’s services sector rose to an 11-year high in June amid improving demand, capacity expansion and favourable economic conditions, a private survey showed.
The S&P Global Purchasing Managers’ Index (PMI) for services rose to 59.2 in June—the highest level since April 2011—compared with 58.9 in May. The data highlights a strong recovery in services, which is also reflected in robust GST collections.
Services firms noted a substantial upturn in new work intakes at the end of the first fiscal quarter. According to S&P Global, enterprises were able to secure new orders despite charging more.
However, high inflation remained a concern for businesses, the survey showed. Despite easing to a three-month low in June, the overall rate of input cost inflation remained elevated by historical standards, and one-fifth of the businesses surveyed reported greater expenses, with the remaining showed no change since May, it noted.
Unrelenting inflation continued to worry businesses, who were cautious about the year-ahead outlook for business activity. As a result, the overall sentiment was well below its long-run average, as only 9% of companies forecast output growth.
June data showed the fastest increase in selling prices since July 2017 as several companies sought to transfer part of their additional cost burden to clients. Sharper increases in charges were seen across the broader areas of the service economy, with the highest upturn recorded in transport, information and communication.
Pollyanna De Lima, economics associate director at S&P Global Market Intelligence, said: “Activity growth in India’s service sector moved up a gear again in June, reaching its strongest in over 11 years and surpassing that seen in manufacturing for the third month running."
However, she noted that cost pressures in the service economy remained stubbornly high in June, despite easing to a three-month low. With companies retaining significant pricing power owing to robust demand conditions, output charge inflation climbed to near a five-year peak.
Consumer services posted the strongest increases in both output and new orders in June, but growth rates quickened across the board.
Commenting on the services sector growth, Aditi Nayar, chief economist at ICRA, said: “Middle-to-high income households are likely to prioritize spending on contact-intensive services that were avoided during the pandemic at the cost of consumer durables. This is likely to result in a slower improvement in capacity utilization levels, modestly delaying the private sector’s capex plans amid the global headwinds and elevated commodity prices."
According to S&P Global, growth of the private sector output steadied in June. The S&P Global India Composite PMI Output Index was at 58.2, little-changed from 58.3 in May and indicative of a marked rate of expansion.
With services firms and their manufacturing counterparts showing slower increases in input prices, the aggregate rate of cost inflation eased to a three-month low. However, the upturn was among the strongest in the survey’s history. As for selling prices, a faster increase at services firms contrasted with a slower rise at goods producers. Further, the survey showed that private-sector jobs rose in June, following a fractional decline in the previous month. Slight increases in employment were recorded in both manufacturing and service sectors.
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