The services sector marched forward aggressively in August. This was reflected in the Purchasing Managers’ Index (PMI) for service, which rose to 57.2 in August as against 55.5 in July. Equally important fact is the sharpest rise in employment for over 14 years.

The services sector has an over over 54 per cent share in Gross Value Added (GVA). It comprises mainly consumer (excluding retail), transport, information, communication, finance, insurance, real estate and business services. PMI is compiled by S&P Global from responses to questionnaires sent to a panel of around 400 service sector companies. An index of over 50 means expansion, while that below 50 reflects a contraction.

Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence, said Indian services activity rose strongly midway through the second quarter, with the pace of expansion recovering some of the ground lost in July. The pick-up in growth stemmed from a rebound in new business gains, as firms continued to benefit from the lifting of Covid-19 restrictions and ongoing marketing efforts.

Also read: Services PMI at 4-month low of 55.5 in July

“Finance & insurance was the brightest area of the service economy in August, with growth of sales and output. As for input cost inflation, consumer services topped the sector rankings, but transport, information and communication saw the fastest rise in selling price,” she said.

Though July and August are considered slow months for manufacturing activity because of the monsoon, these two months are good for some service segments such as tours and travel and hospitality. In August, India saw an impressive increase in people travelling either by train or by air, and also in hotel bookings. At the same time, the financial sector saw renewed demand for credit from various sectors of the economy, which helped the services sector grow, which has a positive impact on the job scenario.

In its report on PMI, S&P Global said the combination of strong sales and upbeat growth projections underpinned a substantial increase in payroll numbers across the service sector. “The rate of job creation picked up to the strongest in over 14 years. Employment trends improved in each of the four monitored sub-sectors,” it said. Further, it said August data highlighted another increase in the operating expenses faced by services companies, with panellists often mentioning higher food, fuel and labour costs. “That said, the overall rate of inflation softened to an 11-month low,” the agency said.

Adding to that, De Lima said with demand showing considerable resilience, service providers maintained a degree of pricing power and lifted the selling price, amid the transfer of cost increases to customers. While the rate of inflation was broadly similar to July, there was a considerably softer upturn in input costs. The latter rose at the weakest pace in close to a year. “There were other positives in the latest results. Business confidence strengthened substantially, reaching its highest since May 2018,” she said.

While charges for consumer and real estate & business services rose at quicker rates, there were slowdowns for finance & insurance and transport, information & communication fees. Outstanding business volumes at Indian services companies continued to increase in August, taking the current sequence of accumulation to eight months. The rate of expansion was solid and the fastest in a year-and-a-half, S&P Global said.