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India's Service Sector Grows Rapidly: A 13-Year High in Business Activity and Optimism

5 October 2023

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According to a study that also revealed businesses were at their most upbeat in nearly nine years, expansion in India's predominant services industry quickened in September as already strong demand reinforced. That is encouraging for the third-biggest economy in Asia, which is predicted to outpace all other major economies during the current year and break the general trend of slowing growth.

In spite of predictions in a Reuters poll expecting a decline to 59.5, S&P Global's India services purchasing managers' index (INPMIS=ECI) increased to 61.0 last month from 60.1 in August. For the 26th straight month, the index was beyond the 50-point threshold that separates expansion from contraction.

According to Pollyanna De Lima, associate director of economics at S&P Global, "the latest PMI results brought more positive news for India's service economy, with business activity and new work intakes rising to one of the greatest extents in over 13 years"

"Besides demand strength domestically, firms noted higher international sales to Asia, Europe and North America."

Despite a minor increase in the new business sub-index, a crucial indicator of demand, to 61.2 last month, growth in exports slowed to its lowest rate since June but continued to expand for an eighth successive month. This increased corporate optimism for the upcoming year reached its greatest level since June 2014. With businesses continuing to employ for a 16th consecutive month, the creation of jobs also remained strong.

Input price growth slowed to its lowest level since March, while the prices charged index fell to its lowest level in six months as businesses refrained from raising prices significantly in an effort to attract more clients, providing evidence that the recent resurgence in inflation may only be temporary.

De Lima added, "News on prices was also encouraging. Services charges rose at a softer rate as cost pressures receded to one of the lowest in two-and-a-half years,". 

"Although the latter indicates that near-term output price inflation may cool, worries about potential fluctuations in food prices due to El Nino means the RBI is highly unlikely to cut rates until early next year."

According to a recent Reuters poll, the Reserve Bank of India would maintain its interest rate at 6.50% till the end of April before cutting it by a quarter point in the second quarter, at the same time that its international counterparts are anticipated to begin loosening their fiscal stances.

The total S&P Global India Composite PMI Output Index increased marginally to 61.0 in September from 60.9 in August as production expanded at its slowest rate in five months but services industry expansion was strong.



 

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