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The surge in domestic and international demand brought the services sector to a new high in September, a survey-based index prepared by S&P Global Market Intelligence showed on Thursday. The index, popularly known as the Purchasing Managers’ Index (PMI), rose to 61 in the said month as against 60.1 in August. Growth in the output was 13 years high. However, job creation was moderate, though sustained.
The services sector has a 54 per cent share in Gross Value Added (GVA).
“The latest PMI results brought more positive news for India’s service economy, with September seeing business activity and new work intakes rising to one of the greatest extents in over 13 years. Besides demand strength domestically, firms noted higher international sales to Asia, Europe and North America,” Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence, said in a report released along with an index.
The index is based on responses from purchasing managers of 400 companies belonging to consumer (excluding retail), transport, information, communication, finance, insurance, real estate and business services. An index above 50 means expansion, while below 50 refers to contraction. The latest movement in Services PMI is contrary to Manufacturing PMI, which declined to 5 months low of 57.5 in September.
Meanwhile, talking about the job scenario, S&P Global Market Intelligence said that Additional staff were recruited to aid firms’ efforts to keep on top of current workloads and in anticipation of further growth in the coming months. The overall pace of job creation was moderate but above its long-run average. “An upturn in business optimism about the year ahead, fuelled by buoyant demand conditions, bode well to further growth across the service sector. Unsurprisingly, job creation was sustained as the business mood improved,” De Lima said.
Amidst buoyancy, companies got some relief on the price front, but the expectation is that it will not stay long. The report highlighted that input cost inflation retreated substantially in September. The rate of increase was equal to its long-run average and one of the weakest since late 2010. Where expenses rose, panellists reported having paid more for chicken, rice, vegetables and transportation. There were also mentions of higher staff costs. Some firms opted to pass on to their clients additional cost increases by raising selling prices. At the same time, others suggested that charges were left unchanged amid attempts to secure new customers. The overall rate of charge inflation was solid, though the softest in six months, the report added.
“News on prices was also encouraging. Services charges rose at a softer rate as cost pressures receded to one of the lowest in two-and-a-half years. Although the latter indicates that near-term output price inflation may cool, worries about potential fluctuations in food prices due to El Niño means the RBI is highly unlikely to cut rates until early next year,” added De Lima.
Companies are optimistic about the future. The report mentioned that confidence in the outlook improved, with survey members forecasting healthy market dynamics and buoyant demand for the year ahead. “The level of positive sentiment was at its highest for over nine years,” it said.
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