Services sector in India has expanded at its fastest pace in 11 years in May, the Purchasing Managers’ Index (PMI) survey showed. According to a report released on Friday, the PMI surged to 58.9 against 57.9 in April.

However, the sector is facing unprecedented rise in input prices. Also, job opportunities declined in the reporting month. A recent survey pointed out that PMI for manufacturing changed a little to 54.6 in May against 54.7 in April.

Service sector is the biggest contributor to the Indian economy in terms of value. It has a share of over 53 per cent in gross value added (GVA).

PMI is an important indicator of economic activities and released ahead of the official estimates. It is compiled by S&P Global from responses to questionnaires sent to a panel of around 400 service sector companies.

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The sectors covered include consumer (excluding retail), transport, information, communication, finance, insurance, real estate and business services. A diffusion index is calculated for each survey variable. Index above 50 shows expansion while below 50 means contraction.

On the latest survey results, Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence, said the reopening of the economy continued to help lift growth in the services sector. Business activity rose at the quickest pace in over 11 years in May, supported by the fastest upturn in new orders since July 2011, she added.

“That said, the inflation outlook appeared to have worsened as input prices rose at the sharpest pace in the survey history. Services firms again reported substantial pressure from food, fuel, input, labour and transportation costs. Output charge inflation softened only marginally from April, being the second-highest in just under five years, as several companies mentioned the need to transfer mounting costs through to clients,” she said.

A statement by S&P Global said service providers refrained from taking additional workers in May. In fact, there was a renewed but only marginal decline in employment.

“The latest results continued to signal subdued global demand for Indian services, with new business from abroad having now declined in each month since the onset of Covid-19 in March 2020,” it said.

Despite remaining optimistic towards the 12-month outlook for business activity, firms remained concerned that inflationary pressures would dampen the economic recovery.

“Elevated price pressures continued to restrict business optimism. Despite picking up from April, the overall level of sentiment among service providers was historically subdued,” De Lima said.

S&P Global said that underlying data highlighted consumer services as the best-performing area of the service economy in May, where growth of both new orders and business activity surpassed those seen in the other three monitored sub-sectors.

Consumer services also recorded the sharpest rate of input cost inflation halfway through the opening quarter of fiscal year 2022/23, while the fastest upturn in output charges was seen at Transport, Information & Communication companies.

“Consumer services remained the brightest spot of the service economy, posting the strongest increases in both new business and output during May. It was here too that the steepest rate of input cost inflation was seen,” added De Lima.

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