A surge in both domestic and global demand boosted the services sector in July as a survey-based index, better known as Purchasing Managers’ Index (PMI), prepared by S&P Global jumped to 62.3. This is a 13-year high.
“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.
The services sector has the largest share in Gross Value Added (GVA) with over 53 per cent. On Tuesday, S&P Global had said that manufacturing PMI maintained June level in July. Manufacturing has a share of around 18 per cent in GVA. With more than two thirds of the economy showing excellent performance, there is expectation that the overall GVA and GDP (Gross Domestic Products) will show higher growth number for the second quarter (July-September). The RBI expects GDP growth to be 8 per cent in first quarter and 6.5 per cent in second quarter.
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According to S&P Global, demand for Indian services improved to the greatest extent in over 13 years in July, with around 29 per cent of survey participants reporting higher intakes of new business. The upturn in total new orders was boosted by a pick-up in international sales. Service providers noted the second fastest increase in new export orders since the series started in September 2014. According to panellists, Bangladesh, Nepal, Sri Lanka and the UAE were key sources of growth.
July data signalled a further increase in input costs facing Indian service providers. Moreover, the rate of inflation quickened to a 13-month high. Monitored companies signalled greater food, labour and transportation costs, it added.
De Lima said that 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 being modest relative to several other nations. Although, “input cost inflation ticked higher in July, service providers were again cautious in their price-setting decisions amid efforts to not deter sales,” she said.
Talking about jobs, the agency said that companies continued to add to their workforce 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, however. When assessing the year-ahead outlook for business activity, service providers on average were optimistic.
“Growth expectations stemmed from forecasts of demand strength and marketing initiatives. The overall level of positive sentiment slipped from June’s six-month high, however, owing to concerns surrounding extreme weather,” the report said.