Home / Economy / Services output grows at slowest pace since March

India’s services sector recorded its weakest output growth in the six months to September because of weak sales and inflationary pressures, a private survey showed on Thursday.

The S&P Global India Services Purchasing Managers’ Index came in at 54.3 in September—the 14th month of growth in a row. But it was down from August’s 57.2, S&P Global said.

A reading of 50 separates expansion from contraction.

The September data highlighted a loss of momentum in private sector output growth.

“The Indian service sector has overcome many adversities in recent months, with the latest PMI data continuing to show a strong performance despite some loss of growth momentum in September,“ the statement said quoting Pollyanna De Lima, economics associate director at S&P Global Market Intelligence.

An upturn in inflation could damage consumer spending, dampen business confidence and test the resilience of the service sector in the coming months.

However, at least for September, service providers were strongly upbeat on growth prospects, Lima said.

According to the survey, service firms in September linked higher output to greater bookings, events and client bases.

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However, the upturn was reportedly restricted by price pressures and an increasingly competitive environment.

The overall PMI, too, declined to 55.1 in September from 58.2 in August—its weakest expansion since March —as both manufacturing and services sectors cooled on account of a substantial easing in demand.

Official data released earlier this month showed that the government’s revenue from goods and services tax (GST)remained robust at over 1.47 trillion in September, up 27%. Policymakers said against the challenging global environment, economic activity in India remains stable.

Real GDP growth during the June quarter, at 13.5%, was lower than the expectations of economists and the Reserve Bank of India. But growth in the second half of FY23 is expected to be supported by a late recovery in kharif sowing, comfortable reservoir levels, improvement in capacity utilisation, buoyant bank credit expansion and public spending. RBI expects India to end FY23 with 7% growth.

S&P Global said that new orders displayed a similar pattern to business activity, rising for the 14th month in a row, but at the slowest pace since March.

“September also saw a broad stabilisation of input cost inflation and the slowest upturn in prices charged for the provision of services since March. However, the steep depreciation of the rupee seen towards the end of the month due to interest rate hikes in the US present additional challenges to the Indian economy,“ said De Lima.

“Currency instability poses renewed inflation worries as imported items become more costly, and undoubtedly means that the Reserve Bank of India will continue hiking interest rates to protect the rupee and contain price pressures,“ she added.

Reserve Bank of India has raised interest rates by 190 basis points since early May in a bid to curb inflation. It is expected to tighten policy again when its rate-setting panel meets in December.

India’s factory growth dipped to a three-month low in September, S&P reported on 3 October. The Manufacturing PMI fell to 55.1 in September from 56.2 in August, lower than 55.8 predicted by economists in a Reuters poll, but the pace of growth was still solid.

(With inputs from Gireesh Chandra Prasad)

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