Growth in new business thrusts services PMI to 5-month high in Aug

Job creation in sector 'remains solid'; companies positive about economy

Growth in India’s dominant services sector rose to a five-month high in August as new businesses expanded amid easing inflationary pressure, said a private survey on Wednesday.

The HSBC headline Purchasing Managers’ Index (PMI), compiled by S&P Global, rose to 60.9 in August from 60.3 in July. The index was above the neutral 50-mark that separates contraction from expansion for the 37th month straight.

Inflationary pressures retreated to their lowest in four years and job creation rose as companies said they are upbeat about the economy. "Indian service providers signalled that the strong start to the second fiscal quarter continued into August, with business activity expanding to the greatest extent since March as growth of incoming new business ticked higher," said the survey.

It noted that sales growth was centered on the domestic market and new export business increased at a slower pace in August.

"The rise [in exports] was still marked, despite easing to a six-month low. Companies that reported an improvement commented on better demand from Asia, Australia, Europe, Latin America, the Middle East and the US."

Finance and insurance were the best-performing sectors in services, in terms of both output and new business.

Pranjul Bhandari, chief India economist at HSBC, said that services growth was "largely fuelled by an increase in new orders, particularly domestic orders."

"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," she said.

The survey noted that service providers expect operating expenses will increase amid greater food, labour and transportation costs. "The overall rate of inflation was, however, modest and the weakest since August 2020."

Confidence in the year-ahead outlook for business activity, coupled with rising backlogs and sustained growth of new business supported job creation in the service sector. The pace of employment growth slowed to a four-month low in August but "remained solid".

"Employment levels remained robust, though there was a slight decrease in the pace of hiring compared to July," said Bhandari.