India’s services sector expanded at its quickest pace in five months in August, driven by strong demand and easing inflationary pressures, according to a survey. The HSBC final India Services Purchasing Managers’ Index (PMI), compiled by S&P Global, rose to 60.9 in August, up from 60.3 in July. This was higher than the initial estimate of 60.4 and marked the highest level since March.
A reading above 50 indicates growth in the sector, and the index has stayed above this level since August 2021, showcasing continued expansion. The latest figure was also well above the long-term average, indicating robust performance.
Key Factors Driving Growth
The growth was mainly driven by a rise in new orders, particularly domestic orders, showing strong local demand. International demand also contributed but slowed down significantly, hitting a six-month low. Despite this, the services sector remained resilient overall.
Business Confidence and Hiring
Although businesses were optimistic about future growth, their confidence fell to its lowest level in more than a year. Companies are hopeful that demand will remain steady and growth will continue in the coming months.
Hiring activity remained solid, though it eased to its weakest level since April. Companies were still adding staff to meet demand but at a slower pace.
Cost Pressures Easing
Cost pressures for service providers rose moderately, mainly due to higher food, labor, and transportation costs. However, input costs increased at their slowest pace in four years, providing some relief. As a result, firms passed on these costs to customers at a milder rate than in July.
Inflation Outlook
Inflation in India dropped to a near five-year low of 3.54% in July, largely due to a high base effect. However, analysts expect inflation to average 4.2% this quarter and 4.6% in the next quarter.
Impact on Composite PMI
While the manufacturing sector slowed to a three-month low in August, with its PMI at 57.5, the strength of the services sector kept the overall Composite PMI stable at 60.7, unchanged from July.
In summary, India’s services sector continues to show resilience with strong domestic demand, easing inflation, and moderate cost pressures, indicating positive prospects for the economy in the near term.
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