Service sector output grows at slowest rate in six months

India's services sector output in September expanded at the slowest rate in six months as price pressures and an increasingly competitive environment restricted the upturn in business activity.

The seasonally adjusted S&P Global India Services PMI Business Activity Index fell to 54.3 in September from 57.2 in August, highlighting the weakest rate of expansion since March. A reading above 50 indicates an overall increase in output.

"The Indian service sector has overcome many adversities in recent months, with the latest PMI data continuing to show a strong performance despite some loss of growth momentum in September," says Pollyanna De Lima, economics associate director at S&P Global Market Intelligence.

There were further increases in new business and output, while companies continued to take on extra workers to accommodate for rising demand, Lima says, adding that September also saw a broad stabilisation of input cost inflation and the slowest upturn in prices charged for the provision of services since March.

There was little movement in the rate of input cost inflation from August's 11-month low, while selling prices increased at the weakest pace since March, the survey shows.

However, the steep depreciation of the rupee seen towards the end of the month due to interest rate hikes in the US present additional challenges to the Indian economy, says Lima. Currency instability poses renewed inflation worries as imported items become more costly, and undoubtedly means that the RBI will continue hiking interest rates to protect the rupee and contain price pressures, Lima adds.

New orders displayed a similar pattern to business activity, rising for the fourteenth month in a row but at the slowest pace since March.

Softer increases in output and new business were seen in each of the four broad areas of the service economy. In both cases, the fastest expansions were seen in Consumer Services and the slowest in Transport, Information & Communication, the survey shows.

Weak external demand weighed on overall sales, with international orders declining further in September. Monthly contractions have been recorded in each month since the onset of Covid-19, the survey adds.

Capacity pressures moderated in September, with services companies signalling the slowest increase in backlogs since February. Nevertheless, efforts to clear pending workloads and ongoing expansions in sales supported another round of job creation. However, employment rose at a slower rate than in August.

Service providers signalled a further increase in their operating expenses during September, owing to higher energy, food, labour and material costs.

September data also highlighted a loss of momentum in growth of private sector output, following an acceleration in August. The S&P Global India Composite PMI Output Index slipped from 58.2 to 55.1, pointing to the weakest rate of expansion since March.

Private sector sales rose at the weakest pace in six months, amid softer increases in the manufacturing and services economies.