Services sector growth slows in March

India's services sector output expanded in March despite a loss of growth momentum when compared with February.

The seasonally adjusted S&P Global India Services PMI Index fell to 57.8 in March from 59.4 in February, indicating a slower rate of expansion. The index, however, remained in growth territory for the twentieth successive month. A reading above 50 indicates an overall increase in output.

Favourable demand conditions and new business gains were among the reasons cited for the expansion in output.

Similar to output, new business inflows increased at a softer but still sharp rate in March, says the PMI release. According to survey members, demand resilience, competitive pricing and marketing efforts warranted a further uptick in sales.

"The rise in overall new business was supported by an increase in international sales. Companies commonly mentioned an improvement in external demand for their services," the report says.

There was a further increase in input prices at Indian services firms, amid reports of higher food, fuel, transportation and wage costs. However, with a large proportion of survey participants signalling no change in expenses since February, the overall rate of inflation was mild and the weakest in two-and-a-half years.

"India's service sector built on to the momentum gained in February with further increases in new business intakes and output at the end of the 2022/23 fiscal quarter. However, manufacturing has retaken the mantle as the main driver of growth," says Pollyanna De Lima, economics associate director at S&P Global Market Intelligence.

"Input price pressures in the service economy continued to subside, alongside the trend seen in manufacturing. Hence, the aggregate rate of input cost inflation moderated to a two-and-a-half-year low," Lima says.

Backed by demand buoyancy, service providers shared part of their additional cost burdens with clients in March via an upward revision to selling prices. "A sizeable proportion of services firms hiked their selling prices to hedge against rising costs, emboldened by favourable demand conditions. The rate of charge inflation was moderate but quickened since February, a trend that was matched by manufacturing," Lima adds.

Despite rising for the tenth month in a row, services employment grew only factionally in March. Close to 98% of survey participants left payroll numbers unchanged amid sufficient staff levels for current requirements. "Weakness was seen with regards to jobs, with broadly no change in employment seen neither in services nor in manufacturing as a general lack of pressure on operating capacities and diminished confidence towards growth prospects prevented hiring activity. More firms in both sectors anticipate no change in future output from present levels," says Lima.

Strong increases in private sector new business and activity

March data highlighted another upturn in aggregate business activity across India. Despite falling from 59 in February to 58.4 in March, the S&P Global India Composite PMI Output Index pointed to a sharp rate of expansion that was above its long-run average. A slower increase in services activity compared with quicker growth of manufacturing production.