India's Services PMI Activity In February Hits 12-Year High On Strong Demand

The S&P Global India Services Purchasing Managers' Index (PMI) rose from 57.2 in January to 59.4 in February, its highest since February 2011

The rise in demand in India's services sector could ignite hopes for the economy as growth slowed to an annual 4.4 per cent in October-December from 6.3 per cent in July-September.

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Services sector's activity in India expanded at its fastest pace in 12 years in February, riding on strong demand and further easing in price pressures, citing a private business survey news agency Reuters reported on Friday.

According to the report, the rise in demand in India's services sector could ignite hopes for the economy. Of late, India's growth slowed to an annual 4.4 per cent in October-December from 6.3 per cent in July-September as pent-up demand eased and weakness in the manufacturing industry continued.

The S&P Global India Services Purchasing Managers' Index (PMI) rose from 57.2 in January to 59.4 in February, its highest since February 2011 and considerably above all forecasts in a Reuters poll which had predicted a fall to 56.2. It was above the 50-mark separating growth from contraction for a 19th straight month, its longest stretch of expansion since June 2013.

"The service sector more than regained the growth momentum lost in January...as demand resilience and competitive pricing policies underpinned the joint-best upturn in sales over the same period," noted Pollyanna De Lima, economics associate director at S&P Global.

Although new business surged at its quickest rate in eight months, firms only increased hiring marginally and business confidence was the lowest in seven months. "It seems that hiring growth was also dampened by a lack of confidence in the business environment. The degree of optimism recorded in February was...below the historical trend as some companies doubted demand would remain this resilient," De Lima added. "Others displayed concerns surrounding fierce competition for new work."

However, input costs rose at their slowest pace since September 2020, enabling firms to raise prices charged at the weakest rate in a year.

Strong growth in services activity boosted the composite index to 59.0 in February from January's 57.5, despite manufacturing growth slowing to a four-month low. If that trend continues, overall inflation, which rose to 6.52 per cent in January, could ease over the coming months and might provide some breathing space for the Reserve Bank of India (RBI).

The RBI is expected to raise its repo rate to peak at 6.75 per cent in April from 6.50 per cent currently, according to a Reuters poll last week.