Services activity at 11-year high in May on post-Covid business growth

Services activity in May expanded at the fastest rate in over 11 years, supported by a pick-up in new business growth with demand continuing to recover. This follows the reopening of the economy after the Covid lockdowns. The S&P Global India Services Purchasing Managers’ Index (PMI) rose to 58.9 in May from 57.9 in April. The May 2022 figure is the highest since April 2011. A reading above 50 denotes expansion and print below 50 indicates contraction.

The expansion in services activity was backed by acceleration in new business growth, which was the quickest since June 2011, despite cost pressures.

“The reopening of the Indian economy continued to help lift growth in the

services sector,” said Pollyanna De Lima, economics associate director at S&P Global Market Intelligence.

“Inflation outlook appeared to have worsened as input prices rose at the sharpest pace in the survey’s history. Services firms again reported substantial pressure from food, fuel, input, labour and transportation costs. Output charge inflation softened only marginally from April, being the second-highest in just under five years. This came as several companies mentioned the need to transfer mounting costs to clients,” De Lima added.

Input prices continued to rise for the 23rd successive month, the survey said.

India’s retail inflation in April was the highest in eight years at 7.8 per cent, while wholesale price index (WPI)-based inflation rate rose to the highest level in the current 2011-12 series at 15.08 per cent in April.

Services companies continued to pass on the rising cost burden to customers, the survey said.

“Elevated price pressures continued to restrict business optimism. Despite picking up from April, the overall level of sentiment among service providers was historically subdued,” said De Lima.

Consumer services was the best-performing area of the services economy in May. This came even as it recorded the sharpest rate of input cost inflation halfway through the April-June quarter.

The fastest upturn in output charges was seen in transport, information and communication companies.

Despite remaining optimistic towards the 12-month outlook, firms remained concerned that inflationary pressures would dampen economic recovery. The overall level of positive sentiment improved from April, but remained historically low.

Even as there was an increase in outstanding business among services firms during May leading to backlogs, service providers refrained from hiring additional workers during the month.

The survey also signaled subdued global demand for Indian services, with new business from abroad now declining every month since the onset of Covid-19 in March 2020.

Manufacturing PMI steadied in May and was 54.6, a tad lower from 54.7 in April. The steady growth in manufacturing activity was backed by rising international orders despite increase in prices, data showed on Wednesday.

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