India's services sector activity expands again in September as PMI rises to 61.0

India’s September services PMI at 61.0 versus 60.1 in August

India's services activity continued to expand in September, with the purchasing managers' index (PMI) for the sector rising to 61.0 from 60.1 in August, according to data released by S&P Global on October 5.

At 61.0, the September services PMI remains significantly above the key level of 50 that separates expansion in activity from a contraction. In fact, the services PMI has been above 50 for 26 months in a row.

Also Read: September manufacturing PMI lowest in five months at 57.5

"The latest PMI results brought more positive news for India's service economy, with September seeing business activity and new work intakes rising to one of the greatest extents in over 13 years," said Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence.

The PMI is a survey-based indicator based on the responses of around 400 service companies. The sectors it covers includes non-retail consumer services, transport, information, communication, finance, insurance, real estate, and business services. An index is calculated for each sector, all of which are then combined to give an overall PMI figure.

Given that the PMI measures change in activity from the previous month and is seasonally adjusted, it is seen as a good indicator of the momentum in economic activity. Further, it is the most immediately available data point – PMI for any given month, both for the services and manufacturing sectors, is released in the first week of the subsequent month.

In comparison, official data on economic activity – such as the index of industrial production or the index of eight core industries – are released with a lag of a month or more. PMI data is seen as a lead indicator of the state of the economy and policymakers often rely on it to inform their decisions.

The latest services PMI data comes two days after S&P Global said the manufacturing PMI fell to a five-month low of 57.5 in September from 58.6 in August. As a result, the composite PMI - which is a combination of the manufacturing and services indices - edged up to 61.0 from 60.9 in August.

September services activity

The rise in the services PMI last month – after it had fallen to 60.1 in August from July’s over-13-year high of 62.3 – was down to "substantial" increase in new orders. In fact, new orders in September rose at the second-fastest pace since June 2010, S&P Global said. In terms of international business, S&P Global's survey showed higher demand in particular from Asia, Europe, and North America.

To meet the increased orders, Indian service providers hired more staff in September, with the overall pace of job creation "moderate, but above its long-run average".

While policymakers will be enthused by the rising activity levels, they will also be happy with the fact that input cost inflation "retreated substantially"" in September for service firms.

"The rate of increase was equal to its long-run average and one of the weakest since late-2010. Where expenses rose, panelists reported having paid more for chicken, rice, vegetables and transportation. There were also mentions of higher staff costs," S&P Global said.

As a result, while prices charged to clients increased, the inflation was softest in six months, which will please the Reserve Bank of India (RBI), with its Monetary Policy Committee (MPC) set to announce its next interest rate decision on October 6. The MPC has left the policy repo rate unchanged at 6.5 percent so far in 2023-24 and is expected to do so again this week.

Headline retail inflation surging to a 15-month high of 7.44 percent in July had sparked concerns that the rate-setting panel may resume its hiking cycle. However, inflation has since fallen below 7 percent and could even plummet below 6 percent in September, data for which will be released next week on October 12.