India’s services sector output growth hits 3-month high in Nov on strong demand

India’s services sector output growth touched a three-month high in November as business inflows rose markedly amid accommodative demand conditions, a monthly survey said on Monday.

The seasonally adjusted S&P Global India Services PMI Business Activity Index rose from 55.1 in October to 56.4 in November, indicating a sharp increase in output that was the quickest in three months even amid higher operating expenses. Survey participants linked the latest expansion to demand strength, successful marketing and a sustained upturn in sales. For the 16th straight month, the headline figure was above the neutral 50 threshold. In Purchasing Managers’ Index (PMI) parlance, a print above 50 means expansion while a score below 50 denotes contraction.

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“Indian service providers continued to reap the benefits of strong domestic demand, with PMI data for the penultimate month of 2022 showing faster increase in new business and output,” said Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence. On the Jobs front, sustained expansions in new work intakes and demand buoyancy continued to promote job creation in the service economy. “Employment rose at a solid pace that was among the quickest in over three years,” the survey said.

On the prices front, services companies across India reported higher operating expenses. In addition to greater transportation costs, firms reported higher prices for energy, food, packaging, paper, plastic and electrical products. “Whilst on the whole the latest results are encouraging, the trend for inflation is somewhat concerning. Strong demand for services again boosted firms’ pricing power, with more companies transferring cost increase to their customers,” Lima said. The overall upturn in input costs was sharp and little-changed from October, while output charges rose at the quickest rate in over five years, Lima said.

“Evidence of stubborn inflation may prompt further hikes to the policy rate at a time when global economic challenges could negatively impact India’s growth,” Lima added. The RBI will come out with its next bi-monthly policy review on December 7 at the end of a three-day meeting of the Monetary Policy Committee (MPC) beginning Monday. According to experts, the Reserve Bank may opt for a lower rate increase of 25-35 basis points in lending rates amid retail inflation showing signs of moderation and the need to push growth.

Meanwhile, the S&P Global India Composite PMI Output Index — which measures combined services and manufacturing output — rose from 55.5 in October to 56.7 in November. “Private sector activity in India increased for the 16th consecutive month in November, and at the fastest pace since August,” the survey said. The S&P Global India Services PMI is compiled by S&P Global from responses to questionnaires sent to a panel of around 400 service sector companies. The panel is stratified by detailed sector and company workforce size, based on contributions to GDP. Data collection began in December 2005.