Services business is picking up as the Purchasing Managers’ Index (PMI) rose to 59.2 in June. This is the highest figure since April 2011. Good news is that companies started looking for new hires in June. However, inflation is still a concern.
The service sector is the largest contributor to the Indian economy in terms of value. It has a share of more than 53 percent in gross value added (VAT). PMI is based on research and data collected by S&P Global.
Cost pressure remains high
Speaking about the latest research findings, Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence, said Indian service sector activity growth accelerated again in June, reaching its highest point in more than 11 years and entering its third times exceeded production. month walk. Demand for services has improved most since February 2011, supporting a robust economic expansion for the sector in the first quarter of fiscal year 2022-23 and setting the stage for another substantial pick-up in manufacturing next month.
“Consumer Services posted the strongest increases in both production and new orders in June, but growth rates accelerated across the board. Cost pressures in the services economy remained stubbornly high in June, despite declining to a three-month low. With companies maintaining significant pricing power, thanks to robust demand conditions, output tax inflation climbed to a nearly five-year peak,” she said.
IT, Transport sectors record rebound
According to S&P Global, some companies responded to capacity pressure by hiring additional staff in June, but the vast majority (94 percent) left wage numbers unchanged. In general, employment in the service sector has increased slightly, after falling in May.
It further stressed that June data pointed to further accelerations in new business and manufacturing growth in Indian service companies amid continued improvements in demand conditions. While companies expect the recovery to continue over the next 12 months, concerns about price pressures have dampened business confidence. Import costs continued to rise at an all-time high, albeit at their lowest pace in three months, while expense inflation reached a five-year high.
Inflation, a concern
The June data showed the fastest increase in sales prices since July 2017, as several companies sought to pass on some of their additional costs to customers. The four broad areas of the service economy saw stronger increases in tariffs, with the strongest increase in Transport, Information & Communications. Despite falling to a three-month low in June, the headline input cost inflation rate remained high by historical standards, as one-fifth of panellists signaled higher spending and the rest reported no change since May.
De Lima said the ongoing inflation was somewhat concerned with service providers, who were cautious in their forecasts. On average, “business activity is expected to increase over the next 12 months, but overall sentiment remained at an all-time low,” she said.
The index is based on responses to questionnaires sent to a panel of approximately 400 companies in the service industry. The sectors affected include consumer (excluding retail), transportation, information, communications, finance, insurance, real estate and business services. The panel is stratified by detailed sector and company workforce size, based on contributions to GDP. Data collection began in December 2005. A diffusion index is calculated for each study variable. The indices range between 0 and 100, with a reading above 50 indicating a general increase from the previous month, and below 50 a general decrease.
05 July 2022