Services maintain momentum in May amid cost rebound

India’s services sector output grew at the second fastest pace in 13 years this May, as per the S&P Global India Services PMI Business Activity Index

India’s services sector output grew at the second fastest pace in 13 years this May, as per the S&P Global India Services PMI Business Activity Index, which eased slightly from 62 in April to 61.2, triggering a slight uptick in new jobs that was still the highest so far in 2023. A reading of 50 on the PMI indicates no change in business activity levels.    

Positive demand trends also persisted from overseas markets, with export orders rising for the fourth successive month and at the highest pace in this calendar year. Favourable demand conditions, new client wins and positive market dynamics supported output, S&P Global Market Intelligence said in a note. 

Firms reported a surge in costs of inputs as well as food, transportation and wage costs in May, at a pace that was the highest since December 2022. Consequently, firms raised service charges last month at a solid pace that has only been witnessed once in the last six years. 

The highest increase in input costs was faced by consumer services companies, while transport, information and communication firms raised service charges for customers at the steepest rate. 

While firms remained upbeat about business volumes growing a year from now, overall confidence levels fell marginally from April’s levels, with some concerns about competitive pressures building up. 

While the index, based on a survey of purchasing managers indicates demand resilience and output growth, inflationary pressures continued to pose a challenge, pointed out Pollyanna De Lima, economics associate director at S&P Global Market Intelligence. 

“… Ongoing increases in output charges could erode purchasing power, affect the affordability of services and potentially dampen economic growth, companies could be seeking operational efficiencies and exploring alternative sourcing options to navigate through these challenges,” Ms. De Lima said.