After the manufacturing sector showed some weakness, the service sector too lost momentum in September as the Purchasing Managers’ Index slowed to 54.3 as against 57.2 in August. This is the lowest in seven months.

The service sector has the largest share in India’s Gross Value Added (GAV) with over 54 per cent.

Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligences said the Indian service sector overcame many adversities in recent months, with the latest PMI data continuing to show a strong performance despite some loss of growth momentum in September. “There were further increases in new business and output, while companies continued to take on extra workers to accommodate for rising demand. September also saw a broad stabilisation of input cost inflation and the slowest upturn in prices charged for the provision of services since March,” she said.

The depreciating rupee is bad news for the entire economy. According to De Lima, the steep depreciation of the rupee seen towards the end of the month due to interest rate hikes in the US presents additional challenges to the Indian economy. “Currency instability poses renewed inflation worries as imported items become more costly, and undoubtedly means that the RBI will continue hiking interest rates to protect the rupee and contain price pressures,” she said.

PMI is prepared by S&P on the basis of responses to questionnaires sent to a panel of around 400 service sector companies. The sectors covered include consumer (excluding retail), transport, information, communication, finance, insurance, real estate and business services. Index above 50 shows expansion while sub 50 means contraction. The same mechanism is used for mechanism, where PMI for September dropped to 55.1 in September from 56.2 in August.

Weak footing

Talking about the service sector, S&P Global said it ended the second fiscal quarter on a weaker footing, but economic growth was sustained. Both new business inflows and output rose at the slowest rates since March, amid inflationary pressures and competitive conditions, which in turn dampened job creation.

“There was little movement in the rate of input cost inflation from August’s 11-month low, while selling prices increased at the weakest pace since March. The data also highlighted a continued revival in business confidence, with sentiment at its highest level in over seven-and-a-half years,” it said.

Meanwhile, services did not see much addition in new jobs. S&P Global said capacity pressures moderated in September, with services companies signalling the slowest increase in backlogs since February. Nevertheless, “efforts to clear pending workloads and ongoing expansions in sales supported another round of job creation. Employment rose at a slower rate than in August, however,” it said.

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