Growth in the services sector is reflected in a wave of export orders

New Delhi: After falling to a five-month low in May, growth in India’s services sector accelerated in June, led by a record rise in international orders, an industry survey by S&P Global showed on Wednesday.

India’s Purchasing Managers’ Index (PMI) for services rose slightly to 60.5 in June from a five-month low of 60.2 in May. “June data pointed to sustained growth in Indian services sector output, with the pace of expansion accelerating from a five-month low in May amid stronger growth in new orders and an unprecedented expansion in international sales,” S&P Global noted in its monthly report.

The Services PMI is based on a survey of about 400 companies in the services sector. A PMI reading above 50 indicates growth in the sector, while a reading below 50 indicates recession. The Services PMI has been above 50 for almost three years.

In June, the rise in the services PMI was significantly supported by increased orders from overseas markets. “Asia, Australia, Europe, Latin America, the Middle East and the United States were listed as sources of new work from abroad,” the rating agency said.

Positive customer appetite prompted service providers in India to recruit additional staff, with job creation in June being the strongest in 22 months, with short-term and permanent hires being made across junior, mid-level and senior-level roles.

Service providers saw moderate increases in average spending, driven by higher food, fuel and labour costs. The pace of inflation in June was the weakest in four months. Then, sales prices also rose at the slowest pace since February.

“Input costs increased at a moderate pace, which resulted in
“There was a softer rise in producer prices in June,” said Pranjul Bhandari, India’s chief economist
at HSBC.

Additional recruitment increased labor costs in companies and contributed to a further increase in average cost burdens.

However, business confidence fell to an 11-month low on concerns about market uncertainty and competition, with only 23% of companies surveyed expressing optimism.

“Overall, service providers remain confident about their business prospects for the coming year, although optimism levels declined sharply during the month,” Bhandari said.

The Composite PMI also accelerated in June, helped by a stronger inflow of new orders. Manufacturing firms contributed more to the expansion than services firms. The manufacturing PMI rose 0.8 percentage points month-on-month in June, while the services PMI rose 0.3 percentage points.