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India's dominant services sector expanded at the fastest pace in over 11 years in June amid improvements in demand conditions, according to a private survey. But inflation remained a concern as prices charged rose at the sharpest rate in almost five years, the survey showed. S&P Global India Services PMI or Purchasing Managers' Index rose to 59.2 in June from 58.9 in May, the highest since April 2011, beating expectations. A Reuters poll had predicted a dip to 58.7. A reading of more than 50-mark separates growth from contraction.

Companies said the upturn stemmed from ongoing improvements in demand following the retreat of pandemic restrictions, capacity expansion and a favourable economic environment. Services firms noted a substantial upturn in new work intakes at the end of the first fiscal quarter, with the rate of increase improving to the best in over 11 years.

“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. Demand for services improved to the greatest extent since February 2011, supporting a robust economic expansion for the sector over the first quarter of fiscal year 2022/23 and setting the scene for another substantial upturn in output next month," said Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence.

Data released earlier this month, showed India’s manufacturing sector’s growth slumping to a nine-month low in June as high inflation crimped demand for new orders and production, indicating that a full economic recovery would take longer than expected. The S&P Global India Manufacturing Purchasing Managers Index (PMI) declined to 53.9 points in June from 54.6 points in May.

But “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 a near five-year peak," she added. 

"Unrelenting inflation somewhat concerned service providers, who were cautious in their forecasts. On average, business activity is expected to increase over the course of the coming 12 months, but the overall level of sentiment remained historically low."

 

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