Services sector expands again in August as PMI rises to 57.2; employment surges

India's services sector expanded for the 13th month in a row in August, with activity rising faster than it did in July.

The S&P Global India Services Purchasing Managers' Index (PMI) rose to 57.2 in August from a four-month low of 55.5 in July, data released on September 5 showed.

A reading above 50 indicates expansion in activity while a sub-50 print signals contraction.

"The pickup in growth stemmed from a rebound in new business gains
as firms continued to benefit from the lifting of COVID-19 restrictions and ongoing marketing efforts," noted Pollyanna De Lima, economics associate director at S&P Global Market Intelligence.

Improvement in demand conditions as well as a brighter outlook for the year ahead - sentiment among services firms rose to the highest in over four years - resulted in August witnessing  a significant rise in employment in the services sector.

In fact, according to S&P Global's survey, the rate of job creation last month was the strongest in more than 14 years.

While the 'finance and Insurance' segment led the charge in August, 'transport' and 'information and communication' also saw rapid growth in sales and output.

Improved demand also meant firms were able to pass on higher costs to customers. But while input cost inflation declined to an eleven-month low in August, output price inflation was larghely largely unchanged from July.

"With demand showing considerable resilience, service providers maintained a degree of pricing power and lifted selling prices amid the transfer of cost increases to customers," De Lima said.

Although policymakers will be glad to see softening of input price inflation, the transmission to sale prices due to stronger demand will be of concern.

The Reserve Bank of India (RBI) has raised the policy repo rate by 140 basis points to 5.4 percent over the last four months in a bid to contain inflation.

Data released last month showed that while headline retail inflation slipped to a five-month low in July, at 6.71 percent, it was above the medium-term target of 4 percent for the 34th consecutive month. Further, if average inflation for July-September is again outside the 2-6 percent tolerange range, the Indian central bank would have failed to meet its mandate and will need to submit a report to the government explaining the failure.

Like the services PMI, the composite PMI also recovered from July's four-month low of 56.6 to rise to 58.2 in August.

Data released on September 1 showed the manufacturing PMI cooled marginally to 56.2 last month from 56.4 in July.