India’s services sector eased to a three-month low in June, a survey result prepared by S&P Global showed. One reason for this drop could be higher prices, it added.

According to S&P Global, the Services Purchasing Manager’s Index (PMI) eased to 58.5 in June against 61.2 recorded in May. Despite this decline, new job creation rose, it said.

The index has been prepared on the basis of responses from purchasing managers of 400 companies belonging to sectors such as consumer (excluding retail), transport, information, communication, finance, insurance, real estate and business services. Index above 50 means expansion, while sub 50 index means contraction.

Also read: Despite manufacturing PMI slipping to 57.8 in June, optimism still prevails

According to Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence, demand for Indian services continued to surge in June, with all four monitored sub-sectors registering quicker increases in new business inflows.

“This bullish pick-up in growth momentum supported a further sharp upturn in business activity and encouraged another up-lift in employment figures, boding well to near-term growth prospects. Job creation in fact also reflected positive forecasts among companies about the year ahead outlook for output,” she said”.

According to survey members, the upturn stemmed from ongoing increases in new business, a healthy demand environment and marketing initiatives. Service providers noted a sharp and quicker expansion in intakes of new business at the end of the first fiscal quarter.

“Positive demand trends, advertising and favourable market conditions were among the reasons cited by survey participants for the latest upturn in sales,” it said.

June data showed a notable increase in prices charged for the provision of services in India. The rate of inflation was marked and the strongest seen in just under six years. The pass-through of greater input and staff costs to clients was the primary factor highlighted by firms for the latest upturn in charges.

De Lima said that service providers experienced a retreat in cost pressures, although business expenses rose again amid higher food and wage costs.

“Charge inflation showed some signs of stickiness, picking up only slightly from May but nevertheless reaching a near six-year high. Combined with manufacturing, output prices across the private sector increased at the sharpest pace in over a decade,” she said.

De Lima said the latest PMI results coupled with upside risks to food prices suggest that interest rates are highly unlikely to be reduced as 2023 progresses.

On jobs, the report highlighted that services employment expanded as companies sought to stay on top of their workloads and fulfil rising demand requirements.

“The rate of job creation was slight and the joint-fastest in six months,” it said.

Related Topics