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Despite mounting price pressures, India’s service sector grew at the fastest rate in 13 years in April 2023, as per a survey by S&P Global. The S&P Global India Services PMI Business Activity Index rose to 62 in April from 57.8 in March. This marks the fastest expansion in the sector’s output since June 2010.
Robust demand, increased business growth, competitive pricing, and positive market conditions were some of the reasons that contributed to the record expansion in the sector, claimed the survey. Among the four sub-sectors that were examined, the finance and insurance sector saw the greatest rise in output and had the highest sales.
In addition, there was an increase in international demand for Indian services which grew for the third month in a row in April. “India’s services exports skyrocketed by 30% between April and February. A strong digitization drive the world over, cost-cutting measures by businesses to deal with the impending slowdown, and the growing trend of remote working increased demand for exports of services in technology, where India has a comparative advantage,” said Deloitte.
Previously in February 2023, the output of India’s service sector had reached a record high as well. Moreover, the sector is an important part of the country’s economy, which is the third largest in Asia. Over half of the country’s GDP is generated by the services sector. As a result, expansion in this sector would stimulate growth in the Indian economy as a whole.
India’s service sector is expected to grow at 9.1% in 2023 as per the country’s government. Meanwhile, India’s GDP will expand by 5.9% in 2023, according to IMF.
India service sector’s input costs remain high
Despite an uptick in India’s service industry activities, input costs in the sector climbed in April. And the rate of charge inflation last month was the strongest in 2023. The primary sources of inflation were food, gasoline, medicine, transportation, and wages. The consumer services sector experienced the fastest increase in average expenses, while transportation, information and communication industries saw the highest selling prices.
Additionally, India’s service sector staff levels increased only slightly in April despite new orders in the sector reaching their highest level since mid-2010. While some companies increased headcounts to meet rising output demands, most of them did not.
Besides, India’s private sector saw an increase in service-related activities. The S&P Global India Composite PMI Output Index, which measures the country’s combined services and manufacturing output, also increased to a 13-year high from 58.4 in March to 61.4 in April. This was due to similar rates of expansion of manufacturing and service sector companies.
Looking forward, the companies in India’s service sector seem to be optimistic about the future. “Marketing efforts, plans to price competitively and an increased focus on customer relations boosted business confidence in April. Close to 22% of companies forecast growth of business activity over the course of the coming 12 months, compared with 2% that anticipate a reduction,” said Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence.
