At 58.4, services PMI rises at fastest pace in over a decade

The Indian services sector has improved further in October as the Purchasing Managers’ Index (PMI) rose to 58.4 in the month as against 55.2 in September. The positive news was that more jobs were created in the month.

On November 1, PMI for manufacturing surged to 55.9 in October. Manufacturing and Services together have an over 60 per cent share in the Gross Value Added (GVA). Improvement in these two parameters shows that the economy is on a firm footing.

Both the PMI data are released every month by IHS Markit in advance of comparable official economic data. Services has a share of 57 per cent in Gross Value Added (GVA), while it is over 14 per cent for manufacturing.

Both PMIs are prepared by compiling responses from questionnaires sent to a panel of around 400 companies each from the manufacturing and services sectors. A diffusion index is calculated for each survey variable. The indices vary between 0 and 100, with a reading above 50 indicating an overall increase compared to the previous month, and a reading below 50 indicating an overall decrease.

Extended expansion sequence

The current sequence of expansion has extended to three months. Survey participants commonly link sales growth to better underlying demand and successful marketing. Indian firms were able to secure a healthy intake of new work despite charging more for their services. Output prices rose at their strongest rate since July 2017. Anecdotal evidence suggests that additional cost burdens were passed on to clients.

Commenting on the latest survey results, Pollyanna De Lima, Economics Associate Director at IHS Markit, said a substantial rise in prices charged for the provision of services in India had no detrimental impact on demand, as companies signalled the strongest monthly expansion in new business in over a decade. Hence, the recovery of the sector entered its third straight month, with firms scaling up activity at the fastest pace in ten-and-a-half years and creating more jobs.

"Service providers were concerned that persistent inflationary pressures could deter growth in the coming year. Business confidence remained subdued in the context of historical data,” she said.

Services companies continued to hire additional workers in October. Although moderate, the pace of job creation quickened from September, to the strongest since February 2020. Although service providers were confident that business activity would increase over the course of the coming 12 months, the overall level of sentiment was little-changed from September and well below its long-run average.

Some firms expect sales and output to increase as the pandemic recedes and marketing efforts bear fruit, but others were concerned about the impact of inflationary pressures on the recovery.

COMMENT NOW