Services sector in India recorded strong growth in April as Purchasing Managers’ Index (PMI) surged to 57.9 as against 53.6 in March. This is the fastest expansion since November last. It is important to highlight here that the job scenario too improved in April. Services have a share of 54 per cent of Gross Value Added (GVA) of India's economy.
A report by S&P Global on PMI says the April data showed that Indian service sector growth continued to gain momentum, with a surge in incoming new work boosting business activity and supporting a renewed increase in employment.
At the same time, there was an intensification of inflationary pressures, with a near-record upturn in input costs underpinning the strongest rise in output charges in just under five years. Inflation concerns continued to dampen business confidence.
Report methodology
India Services PMI is compiled by S&P Global from responses to questionnaires sent to a panel of around 400 service sector companies. The sectors covered include consumer (excluding retail), transport, information, communication, finance, insurance, real estate, and business services. The panel is stratified by detailed sector and company workforce size, based on contributions to GDP. A diffusion index is calculated for each survey variable.
The index is the sum of the percentage of ‘higher’ responses and half the percentage of ‘unchanged’ responses. The indices vary between 0 and 100, with a reading above 50 indicating an overall increase compared to the previous month, and below 50 an overall decrease.
According to Pollyanna De Lima, Economics Associate Director at S&P Global, the Indian service economy followed manufacturing in gaining growth momentum at the start of the fiscal year 2022/23.
“In isolation, the PMI data for the service sector was mostly encouraging, as surging demand underpinned quicker increases in new business inflows and output. Employment rose for the first time in five months but the business sentiment was restrained by inflation concerns,” she said.
Report accompanying the PMI says companies resumed their hiring efforts in April, as seen by the first increase in employment since last November. Those firms that took on extra staff linked the rise to the ongoing growth of a new business.
There was an intensification of inflationary pressures, with a near-record upturn in input costs underpinning the strongest rise in output charges in just under five years. “Inflation concerns continued to dampen business confidence,” the report noted.
Resurgence in price pressures
De Lima said that the latest results showed a resurgence in price pressures during April. Service providers reported having paid more for food, fuel, and materials, with some mentions of higher wage costs also pushing up overall expenses.
The overall rate of inflation quickened to the second-highest in the survey history, leading companies to hike their selling prices to the greatest extent in close to five years. The sharpest increase in input costs was noted in the consumer services sector. Meanwhile, charge inflation was most pronounced in transport, information & communication.
Granular data highlighted consumer services and finance & insurance as the best-performing sub-sectors in April, where the growth of both new orders and business activity quickened substantially from March. Real estate and business services were the only segments to record contractions in sales and output.