India’s Services Sector Growth Climbs To 13-Year High In July

India’s services sector growth touched a 13-year high in July as a substantial improvement in demand conditions and pick-up in international sales induced the strongest increase in new business and output, a monthly survey said today.

The seasonally adjusted S&P Global India Services PMI Business Activity Index rose from 58.5 in June to 62.3 in July, signalling the sharpest increase in output since June 2010.

For the 24th straight month, the headline figure was above the neutral 50 threshold. In Purchasing Managers’ Index (PMI) parlance, a print above 50 means expansion while a score below 50 denotes contraction.

“The resilience of the service sector underscores its vital role in fuelling India’s economy, with the PMI results for July so far pointing to a notable contribution from the sector to overall GDP for the second fiscal quarter,” Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence, said.

According to survey members, the upturn was largely attributed to demand strength and new business gains.

Demand for Indian services improved to the greatest extent in over 13 years during July, with around 29 per cent of survey participants reporting higher intakes of new business.

“The broad increases in sales across the domestic and international markets are particularly welcoming news, especially in light of the challenging global economic scenario. Firms noted a widespread upturn in services exports to several nations including Bangladesh, Nepal, Sri Lanka and the UAE,” Lima said.

On the inflation front, cost pressures intensified and monitored companies signalled greater food, labour and transportation costs. Despite the rise in cost pressures, charges were raised to a weaker extent as firms were cautious about their pricing strategies.

“Looking at PMI price indices in recent months, it seems that competitive advantage continued to support demand for Indian services, with increases in output prices here modest relative to several other nations,” Lima said.

Although input cost inflation ticked higher in July, service providers were again cautious in their price-setting decisions amid efforts to not deter sales, Lima added.

On the job front, companies continued to add to their workforces by hiring a combination of part-time, full-time, permanent and temporary staff. Service sector employment expanded at a slight pace that was broadly similar to those seen in the prior two months.

On the year-ahead outlook for business activity, service providers on average were optimistic. Growth expectations stemmed from forecasts of demand strength and marketing initiatives.

Meanwhile, the S&P Global India Composite PMI Output Index — which measures combined services and manufacturing output — rose from 59.4 in June to 61.9 in July.

“July data signalled a substantial increase in private sector activity across India, with the rate of expansion quickening to a 13-year high,” the survey said.

The S&P Global India Services PMI is compiled by S&P Global from responses to questionnaires sent to a panel of around 400 service sector companies. The panel is stratified by detailed sector and company workforce size, based on contributions to GDP. Data collection began in December 2005.
 

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