Service sector

India’s service sector grows at fastest pace in over 11 years in May

India’s service sector business improved further and grew at the fastest pace in more than 11 years in May, supported by a substantial pick-up in new business growth, even as inflation in service costs inputs hit a record high, according to a monthly survey on Friday. The seasonally adjusted S&P Global India Services PMI Business Activity Index jumped to 58.9 in May from 57.9 in April amid improving underlying demand and strong inflows of new work.

For the tenth consecutive month, the service sector experienced an expansion in output. In Purchasing Managers’ Index (PMI) parlance, a number above 50 signifies expansion while a score below 50 indicates contraction.

“The reopening of the Indian economy has continued to help drive growth in the services sector. Business activity grew at the fastest pace in more than 11 years in May, supported by the fastest recovery in new orders since July 2011,” said Pollyanna De Lima, Economics. Associate Director at S&P Global Market Intelligence.

The recovery was supported by a substantial pickup in new business growth as demand continued to recover after the economy reopened from COVID-19 shutdowns, the survey found. The latest results, however, continued to signal subdued global demand for Indian services, with new business from overseas now declining every month since the onset of COVID-19 in March 2020.

On the price front, the inflation rate reached its highest level in 16.5 years of data collection. A fifth of panelists reported increases, citing increased costs for food, fuel, labor, materials, retail and transportation. “Elevated pricing pressures continued to dampen business optimism. Despite a recovery from April, the overall level of sentiment among service providers was historically subdued,” Lima said.

Although they remain optimistic about the 12-month outlook for activity, companies are still worried that inflationary pressures could dampen the economic recovery. The overall level of optimism remained subdued by historical standards. On the employment front, service providers refrained from hiring additional staff in May. “In fact, there was a further, but only marginal, decline in employment,” the survey said.

Meanwhile, the S&P Global India Composite PMI Output, which measures the combined output of services and manufacturing, fell from 57.6 in April to 58.3 in May, indicating the fastest rate of expansion since last November. Amid a stronger recovery in input prices in the service economy, overall cost burdens rose at the fastest rate since March 2011, the survey found.

High inflation led the Reserve Bank to raise the benchmark interest rate by 40 basis points in an unscheduled review in May. It is expected to take similar action when the Monetary Policy Committee meets for the bi-monthly review on June 8. According to official data, India’s economy grew by 4.1% in the fourth quarter of 2021-22, bringing the annual growth rate to 8.7%. percent.