Indian service Sector Purchasing Managers’ Index (PMI) recorded a figure of 61.2 in May, according to S&P Global. While slightly lower than April’s reading of 62, May’s figure marks the second-highest level since June 2010. This sustained expansionary trend is significant, as a PMI reading above 50 indicates growth in the services sector. In fact, India has been in the expansion zone for 23 consecutive months since August 2021. The latest PMI data reflects the resilience of demand, impressive output growth, and job creation in India’s dynamic service sector.
Improving External Demand Boosts Indian Services
The PMI survey also highlighted the continued improvement in external demand for Indian services. May saw the fourth consecutive rise in new export business, with the pace of expansion being the fastest so far this year. This trend indicates a growing appetite for Indian services in international markets.
Inflation Remains a Concern
Despite the positive growth indicators, inflation remains a worrying factor. Indian service providers reported higher costs in various areas such as food, input materials, transportation, and wages during May. S&P Global noted that overall input prices rose at a marked rate, the fastest since December of the previous year, and above its long-run average. To cope with these cost increases while maintaining affordable prices for consumers, firms opted to raise their selling prices in May. Alarmingly, the survey revealed the joint-fastest increase in output charges in nearly six years. Policymakers are closely monitoring inflation developments, and this may delay potential interest rate cuts.
Composite PMI Shows Steady Performance
The composite PMI, which includes both the Indian manufacturing and Indian services sectors, remained unchanged at 61.6% in May. This suggests that the healthy demand environment contributed to job creation across goods producers and service providers. At the composite level, employment experienced its quickest pace of growth so far in 2023.
Manufacturing PMI Reaches 31-Month High
Earlier in the month, the manufacturing PMI for May reached a 31-month high at 58.7. This increase was attributed to expansions in input stocks, as well as rises in new orders and output levels. The manufacturing sector’s robust performance further reinforces the positive growth trajectory of the Indian economy.
Conclusion
Despite a slight dip in the service PMI (Purchasing Managers’ Index) in May, India’s service sector continues to demonstrate resilience and sustained expansion. The strong demand environment has contributed to job creation, with both the services and manufacturing sectors experiencing growth. However, inflationary pressures remain a concern, with input prices rising at a marked rate. Policymakers are closely monitoring the situation, and the potential for interest rate cuts may be influenced by these inflation developments. Overall, India’s economy shows promising signs of recovery and growth, supported by the dynamic service sector and improving external demand.
