Service sector

Service activity hits 11-year high in May, CFO News, ETCFO

By: Alekh Shah

India’s services sector grew in May at the fastest pace in 11 years, driven by a substantial pick-up in new business growth amid picking up demand after the economy reopened after the COVID-19 shutdowns, a private investigation showed.

According to a report, the seasonally adjusted S&P Global India Services Purchasing Managers’ Index (PMI) stood at 58.9 in May. In April, it stood at 57.9. A PMI above 50 means the sector is expanding.

It remained above the 50 mark for the tenth straight month, the longest stretch of expansion in 12 months of growth between June 2018 and May 2019.

The data reinforces the strong trend of economic recovery visible thanks to strong Goods and Services Tax collections, strong auto sales and manufacturing activity.

However, inflation showed no signs of abating as price indicators showed an unprecedented rise in input costs and the second fastest increase in selling costs in just under five years.

May data recorded a twenty-third consecutive month of rising input prices among Indian service providers. The inflation rate hit its highest level in 16½ years of data collection, the report said.

Service companies again reported significant pressure from food, fuel, input, labor and transportation costs. Production cost inflation eased only slightly from April to the second highest in just under five years as several companies mentioned the need to pass on rising costs to customers,” said Pollyanna De Lima, Associate Director of Economics at S&P Global Market Intelligence.

she added: “Elevated pricing pressures continued to dampen business optimism. Despite a recovery from April, the overall level of sentiment among service providers was historically subdued.”

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 positive sentiment improved from April, but remained historically low, according to the survey.

The data highlighted that consumer services was the best performing area of ​​the services economy in May, where growth in new orders and business activity outpaced that seen in the other three monitored sub-sectors. .

Consumer services also recorded the highest input cost inflation rate in the middle of the first quarter of FY2022/23, while the fastest rise in production costs was seen in transport, information and communication.