Higher prices appear to have some impact on the service sector as the Purchasing Managers’ Index (PMI) dropped to 60.1 in August from 62.3 in July. However, the month saw the fastest rise in exports in the nine-year history of the series and elevated new order and output growth rates. Also, new job creation was better.

Services has an over 53 per cent share of India’s GVA (Gross Value Added). PMI Services is prepared by S&P Global Market Intelligence based on responses from purchasing managers of 400 companies. An index above 50 shows expansion, while that below 50 means contraction.

Also read: PMI: Manufacturing maintains growth momentum in July

“Favourable demand trends also led to the joint-fastest increase in prices charged for Indian services in over six years, which may prompt attention from policymakers and potentially delay cuts to the benchmark repo rate,” said Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence.

Despite falling in August, the Services PM indicated one of the strongest increases in output since mid-2010. When explaining the latest upturn, survey participants mentioned positive consumer appetite, favourable market conditions and successful events. Notably, services firms indicated the sharpest upturn in new export business since the series started in September 2014. The Asia-Pacific, Europe, North America and West Asia were among the sources of sales gains reported by panelists.

De Lima said Indian services companies achieved a remarkable milestone in August, as they welcomed a series record surge in new export business. “This spike in international demand supported one of the best sales performances recorded over the past 13 years, and served as a catalyst for firms to expand their workforces as well as output. Demand strength also fostered a heightened sense of optimism regarding the outlook, boding well for economic growth prospects,” she said.

Talking about jobs, the agency said hiring activity across India’s service economy continued to expand halfway through the second fiscal quarter. Survey participants reported a blend of permanent and temporary staff recruitments on both part- and full-time bases. The rate of job creation was moderate, but the strongest seen since last November.

Further, the agency said capacity pressures at service providers ticked higher in August, evidenced by a stronger increase in work pending completion. That said, the rate of backlog accumulation was only slight. Monitored companies firmly believed that output would remain on an upward growth path over the course of the coming 12 months. “The overall positive sentiment climbed to its highest in the calendar year-to-date. Advertising, demand strength, plans to price competitively and a healthy number of client enquiries all boosted optimism in August, according to anecdotal evidence,” the agency said.

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