Services sector growth in June strong despite high inflation

By India Today Business Desk: India’s service sector exhibited resilience in June, despite high inflation, as strong demand drove growth.

The sector, which accounts for approximately 60 per cent of the country’s overall output, continues to outpace many major peers, indicating a positive outlook for Asia’s third-largest economy in the coming quarters.

According to the S&P Global India services Purchasing Managers’ Index (PMI), the reading declined to 58.5 last month from 61.2 in May, slightly below the Reuters poll prediction of 60.2.

Nevertheless, the figure remained well above the 50-mark, indicating growth rather than contraction.

Also Read | India’s factory growth falls slightly in June, but remains strong

Notably, this marked the longest stretch of growth in nearly a decade, with the sector consistently performing above breakeven since August 2011.

“Demand for Indian services continued to surge higher in June, with all four monitored sub-sectors registering quicker increases in new business inflows,” noted Pollyanna De Lima, economics associate director at S&P Global Market Intelligence.

“This bullish pick-up in growth momentum supported a further sharp upturn in business activity and encouraged another uplift in employment figures, boding well to near-term growth prospects.”

While services firms displayed robust performance, export growth was impacted by the slowdown in the global economy. Despite this, services firms raised their prices at the sharpest rate since July 2017, even as input cost inflation decelerated.

De Lima mentioned that the retreat in cost pressures was overshadowed by rising expenses attributed to higher food and wage costs. Furthermore, the private sector witnessed the sharpest increase in output prices in over a decade when combined with manufacturing.

Though India’s overall inflation cooled to a more than two-year low in May, the outlook remains uncertain due to recent price hikes in certain food items and an unpredictable monsoon season.

These factors are expected to compel the Reserve Bank of India (RBI) to keep interest rates unchanged for the remainder of the year.

While the central bank had previously raised rates by 250 basis points since May 2022 to combat inflation, it surprised analysts in April by keeping them steady.

Slower growth in both services and manufacturing activities led to a decline in the composite PMI, which dropped to 59.4 last month from 61.6 in May, reflecting the overall economic landscape.

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