India’s thriving services sector marked its most significant expansion in 13 years last month, defying expectations of a decline, according to a business survey released on Thursday.
S&P Global’s India Services Purchasing Managers’ Index (INPMIS=ECI) surged to 62.3 in July, surpassing June’s 58.5 and outperforming projections of a drop to 58.0 in a Reuters poll. This reading, the highest since June 2010, has consistently remained above the growth-expansion threshold of 50 for two years.
Pollyanna De Lima, the Associate Director of Economics at S&P Global Market Intelligence, noted that the service sector’s resilience highlights its crucial role in driving India’s economy. The PMI results for July indicate a significant contribution from the sector to the overall GDP in the second fiscal quarter.
Projections from a recent Reuters survey anticipate India’s economy to grow by 6.2% in the July-September quarter.
Despite elevated inflationary pressures, overall demand remained robust. The new business sub-index indicated increased demand since August 2021, with the growth rate reaching its peak since June 2010.
International demand also saw a significant uptick in July, marking the second-strongest performance since the series began in September 2014.
Inflation in India rose to 4.81% in June, primarily due to surging vegetable prices. While this figure falls within the Reserve Bank of India’s (RBI) target range of 2%-6%, the central bank is not expected to implement rate cuts in the near future.
Operating costs experienced the fastest rise since June 2022, prompting firms to pass some of the burden to customers. However, this was done at the slowest pace in three months, reflecting cautious pricing strategies.
De Lima added that when examining the PMI price indices over the past few months, it appears that the competitive advantage has been a driving force behind the demand for Indian services. The rise in output prices in India has been relatively modest compared to several other countries.
Despite concerns about extreme weather affecting optimism, the future activity sub-index slipped from June’s six-month high. However, the year-ahead outlook remained strong.
Firms continued to add to their workforce, extending the current sequence of hiring to more than a year. While the rate of hiring remained relatively unchanged from June, it was noted to be on the weaker side.
The Manufacturing Sector PMI (INPMI=ECI), released on Monday, dipped to 57.7 in July. Nevertheless, robust services activity propelled the overall S&P Global India Composite PMI Output Index to a 13-year high of 61.9.