Services boom to nearly 11-year high in October

India’s services sector recorded its strongest output growth in ten and a half years in October, as reflected by the survey-based IHS Markit Services Purchasing Managers’ Index (PMI), which accelerated to 58.4 from 55.2 in September.

A reading of 50 on the PMI indicates no change from the previous month’s economic activity levels. The pace of job creation based on the 400 firms surveyed remained moderate but quickened from September to the fastest since February 2020.

“The recovery of the Services sector entered its third straight month, with firms scaling up activity at the fastest pace in ten-and-a-half years and creating more jobs,” said Pollyanna De Lima, economics associate director at IHS Markit. 

Services businesses also faced the sixteenth successive monthly increase in input costs, with the inflation rate hitting a six-month high and outpacing its long-run average. Companies surveyed by IHS Markit cited higher fuel, material, retail, staff and transport costs. 

Overall business confidence remained subdued due to growing concerns surrounding price pressures. With input costs again rising sharply, companies raised their fees in October at the fastest pace in close to four-and-a-half years. 

 “A substantial rise in prices charged for the provision of services in India had no detrimental impact on demand, as companies signalled the strongest monthly expansion in new business in over a decade,” Ms. De Lima said.  

“That said, service providers were concerned that persistent inflationary pressures could deter growth in the coming year. Business confidence remained subdued in the context of historical data,” she pointed out, citing the survey data collected between October 12 and 27.

Worryingly, the data implied persistent weakness in international demand for Indian services. ‘New export business decreased in October, a trend that has been recorded since the COVID-19 outbreak. Despite being solid, the rate of contraction was the weakest since March,’ the firm said in a statement.  

With the manufacturing PMI also reflecting a strong uptick in October, the Composite PMI Output Index, which captures both Services and goods, rose from 55.3 in September to 58.7, signalling the strongest monthly expansion since January 2012.

The job additions in the Services sectors helped private sector employment record a second successive month of growth, despite job shedding by manufacturers.