Services sector PMI in October shoots up to 58.4, activity rises by fastest pace in a decade

Representational Image. Source: Reuters

Greater consumer confidence, ease of travel due to lesser Covid restrictions and burgeoning demand led to activity in India's services sector rising at a 10-year high pace in October.

According to the monthly IHS Markit India Services Purchasing Managers’ Index (PMI) survey released on November 3, services PMI stood at 58.4 in October, up from 55.2 in September and 56.7 in August. In PMI parlance, a print above 50 means expansion, while a score below that denotes contraction.

A notable pickup in new business has led to output in the services sector expanding at the fastest peace in a decade. The 10-year-high pace of growth in October built upon increasing growth in the past few months.

According to the PMI survey, new work intakes by services firms increased at a sharp and accelerated rate, which was the strongest since July 2011. Moreover, the latest upturn was the third in successive months. Survey participants commonly linked sales growth to better underlying demand and successful marketing.

As the growth of new work intakes continued, PMI survey respondents said ongoing improvements in demand boosted growth of sales and subsequently output. Increasingly accommodative market conditions such as rising consumer footfall have been noted in the past few months.

However, the latest bout of growth is only due to strong domestic demand,  with international orders remaining weak. "The latest data continued to point to weak international demand for Indian services. New export business decreased in October, a trend that has been recorded since the COVID-19 outbreak. Despite being solid, the rate of contraction was the weakest since March," the PMI survey said.

The incessant rise in inflation also continued to pose another challenge for Indian services providers. October data highlighted a sixteenth successive monthly increase in input costs at Indian services firms. The rate of inflation was at a six-month high and outpaced its long-run average. Monitored companies cited higher fuel, material, retail, staff and transport costs.

The PMI survey however pointed out that Indian firms were able to secure a healthy intake of new work despite charging more for their services. Output prices rose at a solid rate that was the strongest since July 2017. Anecdotal evidence suggested that additional cost burdens were passed on to clients.

Job growth

All this also led to the number of jobs in the sector going up after a nine-month period. As a result, the current sequence of expansion in job numbers was extended to three months.

Although moderate, the pace of job creation quickened from September to the strongest since February 2020.

International demand for Indian services also improved, with new export businesses rising at a quick pace. The increase was attributed to international travel restrictions slowly giving away and business closures reversing.

Going forward, service providers were confident that business activity would increase over the course of the coming 12 months, the overall level of sentiment was little-changed from September and well below its long-run average.

The PMI survey pointed out that while some firms expect sales and output to increase as the pandemic recedes and marketing efforts bear fruit, others remained concerned about the impact of inflationary pressures on the recovery.

Overall, private sector output in India increased at a sharper rate in October as growth quickened among both manufacturers and service providers. The Composite PMI Output Index rose from 55.3 in September to 58.7, signalling the strongest monthly expansion since January 2012.