Services maintain momentum in May 2023 amid cost rebound

Firms raised service charges last month at a solid pace that has only been witnessed once in the last six years. Representational image only.
| Photo Credit: Reuters

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. 

“With policymakers closely monitoring inflation developments, long-waited cuts to interest rates — which could aid business strategies, budgeting and investment plans — appear more distant,” she reckoned. 

Combined with the rise in the Manufacturing sector PMI to a 31-month high in May, the sustained services sector expansion meant the S&P Global India Composite PMI Output Index remained unchanged from April’s 61.6 mark, which is the highest in 13 years. 

“Growth of aggregate new business softened from April, but was nevertheless the second-fastest in over 11 years,” the firm said, adding that factory orders grew faster than services demand. 

“The healthy demand environment contributed to job creation at goods producers and service providers. At the composite level, employment rose at the quickest pace in 2023 so far. Prices charged for goods and services rose at the strongest rate since April 2022, with price pressures intensifying in a broad-based fashion,” it concluded.