India's services sector surged in April as the sector's Purchasing Managers' Index (PMI) jumped to 62.0 from 57.8 in March, according to data released by S&P Global on May 3.
At 62.0, the services PMI is the highest in nearly 13 years. It has stayed above the key level of 50 that separates expansion in activity from a contraction for 21 months in a row.
The PMI is a survey-based indicator based on the responses of around 400 service companies. The sectors it covers includes non-retail consumer services, transport, information, communication, finance, insurance, real estate, and business services. An index is calculated for each sector, all of which are then combined to give an overall PMI figure.
Given that the PMI measures change in activity from the previous month and is seasonally adjusted, it is seen as a good indicator of the momentum in economic activity. Further, it is the most immediately available data point – the PMI for any given month, both for the services and manufacturing sectors, is released in the first week of the subsequent month. In comparison, official data on economic activity – such as the Index of Industrial Production or the index of eight core industries – are released with a lag of a month or more. As such, PMI data is seen as a lead indicator of the state of the economy and policymakers often rely on it to inform their decisions.
The latest services PMI data comes a couple of days after the manufacturing PMI rose to a four-month high of 57.2 in April.
As a result, the composite PMI, which is a combination of the manufacturing and services indices, jumped to 61.6 in April from 58.4 in March. The April composite PMI of 61.6 is the highest since July 2010.
"Mirroring the trend for business activity, new orders rose at the fastest pace since June 2010. Growth was linked by survey members to strong demand for services and competitive pricing. Finance & Insurance topped the sector rankings for sales," S&P Global said in a statement.
Within new orders, international demand for India's services improved further in April, with new export orders rising for the third month in a row and at the fastest pace over the quarter.
India's services exports are booming, with latest Balance of Payments data showing that in October-December, the services trade surplus rose to a record $38.7 billion from $34.4 billion in July-September.
However, it was not all good news.
"One area of weakness highlighted in the latest results was the labour market. Despite the substantial pick-up in sales growth and improved business sentiment towards the outlook, the increase in employment seen in April was negligible and failed to gain meaningful traction," noted Pollyanna De Lima, economics associate director at S&P Global Market Intelligence.
In addition, price pressures mounted, with input costs rising at the fastest pace in three months in April on the back of higher food, fuel, medicine, transportation, and wage inflation.
With demand robust, service providers passed on the higher input costs to consumers, resulting in selling prices in April rising the most so far in 2023.
The up-tick in inflationary pressures will be of concern to policymakers, especially those at the Reserve Bank of India (RBI). While headline retail inflation slumped to 5.66 percent in March - and is seen falling even lower to sub-5 percent in April - the central bank's Monetary Policy Committee has warned that its decision to maintain interest rates on April 6 was only a pause and not a decisive shift in the direction of monetary policy.
The rate-setting panel increased the policy repo rate by 250 basis points in 2022-23 to 6.5 percent to tackle elevated inflation.