India Services Business Activity Index clocked 60.9 in August, surging ahead from the reading of 60.3 recorded in July. The survey, compiled by S&P Global, showed that there was an upturn in activity in the service sector, backed by growth in new business.
The service providers in the domestic market recorded a robust start to the second quarter in the current fiscal year in August and expansion in business activity was the greatest seen since March. This growth was supported by a surge in new business. Payroll numbers also increased sharply as firms expressed an optimistic outlook for the economy.
This reading showed that the seasonally adjusted HSBC India Services Business Activity Index remained in expansion mode for the thirty-seventh consecutive month. The PMI figure in August also stood well above its long-run average.
High Performing Sectors
The sub-sector data in the survey showed that Finance and Insurance emerged as the best performing sectors in the service economy. These segments clocked the peak performance in terms of both output and new business.
Domestic market contributed to the overall rise in sales as new export business grew at a slower pace in August. Firms that saw an improvement in the area reported that they clocked better demand from Asia, Australia, Europe, Latin America, the Middle East, and the US.
Inflation And Operating Costs
The service providers in India highlighted that their operating expenses rose due to higher food, labour, and transportation costs. However, the overall inflation rate remained modest and weakest since August 2020. In comparison to July, less than 4 per cent firms reported a rise in their average selling prices, while others clocked no change. In the four sub-sectors tracked in the survey, Consumer Services reported the sharpest uptick in input costs in August.
Business Outlook
Consistent confidence in the economic outlook for the year-ahead backed employment creation in the service sector. The pace of job generation remained slowed, even as it slowed to a four-month low. The survey found that 21 per cent of service providers expected a rise in output in the coming 12 months, as compared to 30 per cent in July. The overall positive sentiment also slipped to a 13-month low as some companies remained concerned about competitive pressures.
Economist's Comments
Pranjul Bhandari, Chief India Economist, HSBC, noted, "The Composite PMI for India continued to show strong growth in August, driven by accelerated business activity in the service sector, which experienced its fastest expansion since March. This growth was largely
fuelled by an increase in new orders, particularly domestic orders. Employment levels remained robust, though there was a slight decrease in the pace of hiring compared to July. On a positive note, input costs rose at their slowest pace in six months, with both the
manufacturing and service sectors exhibiting the same pattern. Consequently, output price inflation receded in August. However, the outlook for the Indian private sector over the next year has moderated, reaching its lowest level in 15 months due to competitive pressure, although the Future Output Index remained above the long-term average."