India's PMI Services Grows To 57.2 In August On Better Demand, Easing Cost Pressures

India's economy expanded at its fastest annual pace in a year during the April-to-June quarter driven by strong growth in services and manufacturing activity

Services industry in India grew faster than expected in August, as reported by Reuters on Monday. The reason behind the expansion in demand in services industry is due to continued easing in cost pressures, citing a private survey, the news agency has reported.

India's economy expanded at its fastest annual pace in a year during the April-to-June quarter driven by strong growth in services and manufacturing activity. However, the momentum is unlikely to be sustained over the coming quarters as higher interest rates, elevated price pressures, and growing concerns about a global recession pose significant risks to the economy.

The S&P Global India Services Purchasing Managers’ Index (PMI) rose to 57.2 in August from 55.5 in July, surpassing the 55.0 estimate in a Reuters poll. It remained above the 50-mark separating growth from contraction for a 13th straight month.

Pollyanna De Lima, economics associate director at S&P Global, “The pick-up in growth stemmed from a rebound in new business gains as firms continued to benefit from the lifting of Covid-19 restrictions and ongoing marketing efforts. Finance and insurance was the brightest area of the service economy in August, leading with regards to growth of sales and output.”

According to the report, while that encouraged firms to raise headcount at the fastest pace since June 2008, signs of demand remaining resilient boosted business confidence to its highest in over four years. But overseas orders contracted for a 30th consecutive month on persistent weakness in global demand.

Faster expansion in services activity and strong manufacturing growth boosted the composite index to 58.2 in August from 56.6 in July. Input prices, albeit elevated, increased at their slowest pace in nearly a year in August. Persistent strength in demand allowed firms to transfer some of their high-cost pressures onto their customers.

Although overall inflation is widely expected to slow over the coming months, it is unlikely to decline to within the Reserve Bank of India’s (RBI’s) medium-term target range of 2 per cent-6 per cent anytime soon.

The central bank, which has already raised its key repo rate by 140 basis points since May, is expected to continue with its rate hikes.