India services growth slows down in March after 12-year high in Feb

Growth in India’s dominant services sector fell to 57.8 in March from a 12-year high of 59.4 in February, said a private survey on Wednesday, as new businesses and output lost momentum amid cost pressures easing.

The headline figure in the survey by credit rating agency S&P Global has been in the expansion zone for the twentieth consecutive month since August 2021.A print above 50 in the survey denotes expansion of services activity and below that suggests contraction.

The survey said output expanded in March due to favourable demand and new business gains. New business inflows increased at a softer but still sharp rate, as demand, competitive pricing and marketing efforts helped sales.

“The rise in overall new business was supported by an increase in international sales. Companies commonly mentioned an improvement in external demand for their services,” the survey said.

Pollyanna De Lima, economics associate director at S&P Global Market Intelligence, said India’s service sector built on to the momentum gained in February with further increases in new business intakes and output at the end of the 2022/23 fiscal quarter.  

Despite an increase in input prices at Indian services firms, amid reports of higher food, fuel, transportation and wage costs, a large proportion of survey participants signaled no change in expenses since February, as the overall rate of inflation was mild and the weakest in two and-a-half years.

“Input price pressures in the service economy continued to subside, alongside the trend seen in manufacturing. Still, a sizable proportion of services firms hiked their selling prices to hedge against rising costs, emboldened by favourable demand conditions,” said De Lima.

Despite rising for the tenth month straight, services employment grew only marginally in March. About 98 per cent of survey participants left payroll numbers unchanged amid sufficient staff levels for current requirements.

“Weakness was seen with regards to jobs, with broadly no change in employment seen neither in services nor in manufacturing as a general lack of pressure on operating capacities and diminished confidence towards growth prospects prevented hiring activity,” said De Lima.

Most service providers are optimistic that output would expand in the year ahead with demand strength and marketing efforts being the main reasons supporting business confidence.

The slight decline in services PMI comes in the wake of the latest growth forecasts by World Bank and the Asian Development Bank (ADB).

The World Bank and Asian Development Bank on Tuesday slashed their FY24 economic growth forecasts for India by 30 and 80 basis points to 6.3 per cent and 6.4 per cent respectively, citing risks to the growth outlook arising from both global and domestic factors like lagged impact of monetary policy tightening, worsening of geopolitical tensions and reduced current spending of the government.