Services sector growth hit 6-month low in September

India’s services sector stuttered in September as new business and output growth grew at the slowest pace since March 2022, as per the S&P Global India Services Purchase Managers’ Index (PMI) which dropped to 54.3 from August’s robust 57.2 level. A reading of 50 on the PMI indicates no change in business activity levels.   

September marked the 14 ^th successive month of growth in services sector activity, but price pressures, an increasingly competitive environment and ‘unfavourable public policies’ restricted the upturn, as per the survey-based PMI.   

The moderation in growth also dampened job creation from August, when services players had reported the highest new jobs in 14 years. Yet, there was a continued revival in business confidence, with sentiment at its highest level in over seven-and-a-half years in September. 

Input cost inflation remained close to August levels, which were the lowest in eleven months, while selling price hikes slipped to the lowest rate since March. Transport, Information & Communication posted the sharpest upturn in user charges levied by firms, while Consumer Services players reported the highest upturn in cost burdens owing to higher energy, food, labour and material costs. 

“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,” S&P Global said in a note. 

While there was ‘some loss of growth momentum’ in September, the declining Rupee and higher inflation pose threats in the coming months, cautioned Pollyanna De Lima, economics associate director at S&P Global Market Intelligence. 

“…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. 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,” she said. 

“An upturn in inflation could damage consumer spending, dampen business confidence and test the resilience of the Indian service sector in the coming months but, at least for September, service providers were strongly upbeat towards growth prospects,” Ms. De Lima pointed out.   

‘Renewed slowdown’ 

With the manufacturing PMI also moderating in September, S&P Global said overall private sector output growth lost momentum and its Composite PMI Output Index slipped to the lowest level since March at 55.1, from 58.2 in August. The Services sector witnessed the ‘most sizeable slowdown’, it said. 

The aggregate rate of input cost inflation eased to a 22-month low in September due to broad-based slowdowns in manufacturing and services, while selling price hikes were the ‘weakest in six months’, S&P Global reckoned.