S&P Global said on Tuesday that its India Services Purchasing Managers’ Index (PMI) fell to 56.9 in November from 58.4 in October. A reading above 50 shows an expansion, while that below 50 shows a contraction.
The survey of 400 service sector businesses covers sectors such as transport, information, communication, finance, insurance, real estate, and business services.
Experts pointed out that although growth moderated in November, some segments that have cooled should pick up in the coming months, lifting the overall growth of the sector.
While “electricity, gas, water supply and other utility services” and construction had seen double-digit growth in the September quarter, trade, hotels, transport, communication and services related to broadcasting had seen a moderation in the July-September period, as per GDP data released on 30 November.
This segment is expected to pick up in coming months, said D.K. Srivastava, chief policy adviser, EY India, adding a GDP growth of 6% in the third quarter as forecast by the Reserve Bank of India seems realistic.
“In the whole year, the economy is expected to grow at 6.5% (as projected by RBI) or cross it by a small margin,” Srivastava said. In the second quarter, India’s economy had grown at 7.6%.
A notable growth story is in domestic air travel, with passenger traffic recording a near 27% growth in the April-October period.
The main factor that comes in the way of economic growth is the external sector, Srivastava said.
S&P pointed out that cooling price pressures and demand resilience inducing sales growth aided activity in November.
Rates of both input cost and output charge inflation slipped to eight-month lows, it said.
There was softer expansion in new work intake and output, the slowest in a year, but they were nevertheless sharp and well above their respective long-run averages, S&P said.
Services PMI was reported at 61 in September, 60.1 in August, 62.3 in July, 58.5 in June, 61.2 in May, 62 in April and 57.8 in March.
“Granular data showed widespread slowdown in rates of growth for both new orders and output across the four broad areas of the service economy. Finance and insurance topped the rankings, while real estate and business services came last,” said the S&P Global statement.
It showed that international demand for Indian services improved further, but as for total new orders, growth lost momentum.
The latest increase in new export orders was moderate and the slowest since June.
As per official figures, India has an export surplus in services.
S&P noted that although the overall rate of growth softened to the weakest since November 2022, it was sharp and above the series trend.
“Despite falling from 58.4 in October to a one-year low of 56.9 in November, the seasonally adjusted S&P Global India Services Business Activity Index pointed to a sharp increase in output across the sector. The rate of expansion was also considerably stronger than its long-run average. Survey participants that signalled growth mentioned favourable demand trends and new business gains,” it said.
Pollyanna De Lima, economics associate director at S&P Global Market Intelligence, said in the statement, “India’s service sector has lost further growth momentum midway through the third fiscal quarter, but we continue to see robust demand for services fuelling new business intakes and output. The current rates of expansion look very healthy when considering their respective long-run averages and the outlook for business activity remains bright in spite of optimism fading due to rising inflation expectations.”
She noted that there was some relief for service providers in India on the cost front, with the rate of input price inflation receding to the weakest in eight months. Fewer companies hiked their fees as a result, an aspect that might provide a further boost to demand as 2023 draws to a close, De Lima said.
“Understandably, given the lack of pressure on operating capacities signalled by stable backlog levels, services firms became more cautious when it comes to hiring. Net employment still rose in November, but the rate of job creation was marginal and the slowest in seven months,” she added.
Chief economic adviser Anantha Nageswaran had said last month that with the economy growing at 7.6% in real terms in the September quarter, India is now set to achieve 6.5% growth comfortably in the current fiscal.
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Published: 05 Dec 2023, 11:28 PM IST
