Services activity in April accelerated to a five-month high, with a surge in incoming new work, boosting business activity and supporting a renewed increase in employment even as near-record upturn in input costs continued to dampen business confidence, a private survey said.
Data released by S&P Global on Thursday showed services Purchasing Managers’ Index (PMI) rose to 57.9 in April from 53.6 in March, making up for the loss since the Omicron variant of coronavirus hit the country in late December. “New business inflows expanded further in April, taking the current sequence of growth to nine months. The latest rise in sales was sharp and the strongest since November 2021. Survey members added that the lifting of Covid-19 restrictions led to greater consumer footfall and a general improvement in demand,” it added.
Manufacturing PMI also had witnessed faster growth in April, rising to 54.7 from 54 in March due to quicker increases in production and factory orders, as well as renewed expansion in international sales, data released on Monday showed.
April data pointed to soaring operating expenses at Indian services firms, with survey participants reporting higher chemical, food, fuel, labour, material and retail costs. Having accelerated from March, the overall rate of inflation was sharp and the second-strongest since data collection started in December 2005. “Inflation concerns restricted business confidence in April. Although still positive overall, the overall level of sentiment slipped from March and was much lower than its long-run average,” it added.
However, companies resumed hiring in April, as seen by the first increase in employment since November. Those firms that took on extra staff linked the rise to ongoing growth of new business.
International demand for Indian services worsened in April, a trend that has been recorded in each month since the onset of Covid-19 in March 2020. New orders from abroad fell at a marked pace that was quickest since September 2021.
Pollyanna De Lima, economics associate director at S&P Global, said the Indian service economy followed manufacturing in gaining growth momentum at the start of FY23. “The results show a resurgence in price pressures. Service providers reported having paid more for food, fuel and materials, with some mentions of higher wage costs also pushing up overall expenses. The overall rate of inflation quickened to the second-highest in the survey history, leading companies to hike selling prices to the greatest extent in close to five years. Consumer services and finance & insurance were the top-performing areas of service economy... real estate & business services was the only sub-sector to post contractions in sales and output,” she added.
The Russian invasion of Ukraine has put upward pressure on food and commodity prices, forcing the RBI to reassess its accommodative policy stance. In its latest monetary policy review, the central bank kept key policy rates unchanged but signalled that it would now prioritise keeping inflation in check over incentivising growth.
The RBI revised downwards its growth projection for FY23 to 7.2 per cent from 7.8 per cent, while raising its inflation forecast for the year to 5.7 per cent from 4.5 per cent, assuming crude oil prices at $100 per barrel. The World Bank also earlier this month slashed its FY23 growth forecast for India to 8 per cent from 8.7 per cent estimated in January, citing tepid recovery in consumption demand and escalating uncertainties due to the Russian invasion of Ukraine.