Services sector soars; overseas demand on the rise

India’s services sector exhibited impressive growth in September, with the S&P Global India Services Purchasing Managers’ Index (PMI) rising to 61 from August’s 60.1. This consistent expansion since August 2021 reflects the sector’s longest growth streak since 2011.  

Driven by surging demand and strong sales, India’s services industry, a major contributor to its GDP, remains a key player in the global market, with international clients in Asia, Europe, and North America showing increased engagement. 

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India’s services sector has been a significant contributor to the country’s economic growth. The latest data from the S&P Global India Services Purchasing Managers’ Index (PMI) indicates that the sector has displayed remarkable growth in recent months. The PMI surged to an impressive 61 in September, following August’s already robust figure of 60.1. This growth is indicative of the sector’s resilience and highlights the potential for further expansion in the future.

India’s robust services sector expansion

The S&P Global India Services Purchasing Managers’ Index (PMI) is a widely recognized economic indicator that measures the performance of the Indian services sector. It provides a monthly snapshot of business conditions in areas such as hospitality, finance, healthcare, and retail, by surveying purchasing managers at various companies. The PMI is based on key factors like new orders, employment, and business activity, with a score above 50 indicating expansion and below 50 suggesting contraction in the services sector.

India’s services industry plays a pivotal role in the country’s GDP, accounting for over 50% of its economic output. The recent S&P report highlights that Indian firms have experienced a substantial uptick in demand from international clients, particularly from Asia, Europe, and North America. While there was a slight slowdown, it only pushed the growth rate to a three-month low, remaining one of the swiftest expansions in the sector’s history, dating back to September 2014. This impressive performance can be attributed to the significant increase in new business for Indian service providers, the second-fastest since June 2010, driven by favourable market dynamics.

Notably, international clients from diverse regions are actively contributing to India’s services sector success story. This international engagement underscores India’s role as a key player in the global market.

Services PMI in India a resilient year of growth

The monthly snapshot of India’s Services Purchasing Managers’ Index (PMI) trends for the year 2023.

Source: FX Empire

In January, the Services PMI started the year at 57.2, signifying a positive start with moderate growth. February saw further improvement, with the index rising to 59.4, indicating an acceleration in the expansion of the services sector. In March, it showed a slight decrease from the previous month at 57.8, it showed a slight decrease from the previous month.

April marked a notable surge in services activity, as the PMI jumped to 62, signifying robust growth in the sector. In May, PMI stood at 61.2, indicating a continued strong performance. However, in June, there was a slight dip in the PMI to 58.5, suggesting a moderate slowdown in the rate of expansion.

July witnessed a significant rebound, with the Services PMI soaring to 62.3, reaching one of the highest levels in 2023. This indicated a strong resurgence in services sector activity. August saw a minor dip to 60.1, which, while slightly lower, still signified healthy growth.

In September, the Services PMI remained strong at 61, indicating that the services sector continued to expand, supported by increasing demand and sales performance.

Overall, the table reflects a dynamic year for India’s services sector in 2023, with periods of robust growth and occasional moderation. The sector’s ability to maintain PMI values above 50 throughout the year indicates its resilience and its significant contribution to India’s economic activity.

India’s economic resilience and expansion

The S&P Global India Services PMI also reveals a substantial reduction in input cost inflation in September, aligning with its long-term average and marking one of the weakest points since 2010. Some companies responded to these cost pressures by adjusting their selling prices, while others maintained their charges unchanged to attract new customers. Overall, the rate of charge inflation remained solid but was the softest it had been in six months.

Input cost inflation refers to rising expenses for raw materials, labour, and resources used in production, impacting business profitability and potentially leading to price hikes or reduced margins.

Government data indicates that the Indian economy has been on an upward trajectory, expanding by a commendable 7.8% in the first quarter of the current fiscal year. This growth has been bolstered by higher government and private capital expenditure, as well as the robust performance of the services sector. The GDP growth rate for the January to March 2023 quarter reached 6.1%, pushing the annual growth estimate for the fiscal year 2023 to 7.2%, a positive revision from the earlier projection of 7%.

Services sector drives composite PMI growth

The Composite Purchasing Managers’ Index (PMI) growth indicates the overall economic health of a country by considering both the manufacturing and services sectors, providing insights into economic expansion or contraction.

S&P Global’s recent survey of India’s Purchasing Managers’ Index (PMI) for manufacturing in August revealed a modest slowdown, registering a reading of 57.5, the slowest in five months. However, in the broader context, the Composite PMI, which combines data from both the manufacturing and services sectors, demonstrated resilience and growth. In September, it surged to 61 from 60.9 in August, largely fueled by robust sales in the services sector.

This uptick in the Composite PMI underlines the overall strength of India’s economy, despite a slight dip in manufacturing, and paints a positive outlook for the nation’s economic expansion.

Sum up

India’s services sector has become a driving force for the nation’s economic growth, consistently pushing the Composite PMI to impressive heights. Its sustained expansion since August 2021 underscores its resilience and pivotal role in the Indian economy, contributing over 50% to the GDP.

Furthermore, this dynamic growth is not limited to domestic demand but extends to international clients across Asia, Europe, and North America. This international engagement solidifies India’s position as a key player in the global market. Combined with the broader economic indicators, such as reduced input cost inflation and strong GDP growth, it paints a promising outlook for India’s continued economic expansion in the years to come.