India’s services PMI drops to a year low of 56.9 due to lower demand

Lower demand forced the services sector to moderate in November as S&P Global’s Purchasing Managers Index (PMI) slipped to a year low at 56.9 in the said month as against 58.4 in October. However, the sector has some relief as prices have come down.

The services sector has a share of around 54 per cent in Gross Value Added (GVA). PMI is advance data released much before the official data. Government data released on November 30 showed that the services sector declined to 5.8 per cent during the July-September quarter of the current fiscal year (Q2 of FY24).

“India’s service sector has lost further growth momentum midway through the third fiscal quarter, but we continue to see robust demand for services fuelling new business intakes and output. The current rates of expansion look very healthy when considering their respective long-run averages and the outlook for business activity remains bright in spite of optimism fading due to rising inflation expectations,” Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence, said

One positive of the downturn was price. According to participants in the survey, based on which PMI is prepared, charge inflation also receded to the weakest in eight months during November, though here, the rate of increase was above the series trend. Consumer Services firms recorded the highest rate of input cost inflation, while the strongest upturn in selling prices was evident in the Finance & Insurance category.

“There was some relief for service providers in India on the cost front, with the rate of input price inflation receding to the weakest in eight months. Fewer companies hiked their own fees as a result, an aspect that might provide a further boost to demand as 2023 draws to a close,” De Lima said. However, inflationary expectation is high.

According to participants, qualitative data from the future output question indicated that rising inflation expectations somewhat curbed optimism in November. However, services firms still forecast activity growth in the year ahead amid hopes of better demand conditions. Marketing initiatives and customer relationship management were also cited as opportunities for the outlook. Finally, the latest results pointed to broadly stable levels of outstanding business among services companies. This curbed recruitment to some extent. This also impacted the job scenario.

“Net employment still rose during November, but the pace of expansion was marginal and the weakest since April,” the survey report said. According to De Lima, understandably, given the lack of pressure on operating capacities signalled by stable backlog levels, service firms have become more cautious regarding hiring. “Net employment still rose in November, but the rate of job creation was marginal and the slowest in seven months,” she concluded.

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