Contrary to manufacturing, the services sector showed better performance in August, as the Purchasing Managers’ Index (PMI) surged to 60.9 as against 60.3 in July. This is the 37th consecutive month of expansion. Also, the August print was the highest since March.

Another positive factor is that job creation continued its momentum in August, albeit at a slower pace.

The services sector contributes more than 53 per cent to GVA (Gross Value Added). The better numbers from the services sector benefit Composite PMI (Services plus manufacturing), which shows how the private sector is doing overall. “The Composite PMI for India continued to show strong growth in August, driven by accelerated business activity in the service sector, which experienced its fastest expansion since March. This growth was largely fuelled by an increase in new orders, particularly domestic orders,” Pranjul Bhandari, Chief India Economist at HSBC, said.

PMIs in services and manufacturing are prepared based on responses from purchasing executives of 400 companies each. An index above 50 means expansion, while an index below 50 reflects contraction.

Regarding job creation, Bhandari said that employment levels remained robust, though there was a slight decrease in the pace of hiring compared to July. The survey report highlighted that confidence in the year-ahead outlook for business activity, coupled with rising backlogs and sustained growth of new business, continued to support job creation across the service sector. “The pace of employment growth remained solid despite slowing to a four-month low,” the report said.

It also mentioned that service providers significantly increased their operating expenses amid greater food, labour and transportation costs. The overall rate of inflation was, however, modest and the weakest since August 2020. Fewer than 4% of monitored companies signalled an increase in their average selling prices relative to July, with the remaining firms reporting no change. Subsequently, the overall rate of charge inflation across India’s service economy was moderate. The rise was also slower than that seen in July.

“On a positive note, input costs rose at their slowest pace in six months, with both the manufacturing and service sectors exhibiting the same pattern. Consequently, output price inflation receded in August,” Bhandari said.

Combining data from manufacturing and services, the report said that August data showed another substantial increase in Indian private sector output. However, due to some moderation in manufacturing, the Composite PMI matched the July reading of 60.7. Service providers signalled the strongest increase in business activity since March, while goods producers posted the weakest rise in production for seven months.

Talking about the future outlook, Bhandari said: “The outlook for the Indian private sector over the next year has moderated, reaching its lowest level in 15 months due to competitive pressure, although the Future Output Index remained above the long-term average.”

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