India’s services industry has witnessed a slight decline in the growth pace for April according to the most recent data, with the seasonally adjusted HSBC India Services Business Activity Index marking a dip to 60.8 from the 61.2 observed in March. Notably, this moderation comes even as service providers reported robust new orders and recorded the second-highest surge in export deals seen in the previous decade.
The data, which tracks changes in the services sector activity, notably suggests that despite the drop in the index figure, the services sector remains well within the expansion territory as reported by S&P Global, with any reading above the threshold of 50 indicating growth.
Service firms pointed to various factors contributing to April’s performance, highlighting favorable economic conditions, significant demand strength, and an increase in the volume of new work. As a result, new business orders and outputs are seen to maintain strong momentum, ranking among the top performances in the past 14 years.
Additionally, confidence across the services sector firms about future prospects has been on an upswing, reaching a three-month high. Companies are optimistic, envisaging favorable business conditions in the months to come.
However, the landscape is not without its challenges. Despite the growth in new business, there’s reluctance from firms to expand their workforce. Reports suggest only a few firms were inclined to take on new hires in April. Several of them indicated having adequate staff for their present needs, leading to job creation at a marginal rate, which was evidently lower than the rate seen in March.
Dissecting the sectors, Finance and Insurance Services displayed steep growth in activity levels, while Consumer Services grappled with the sharpest rise in input costs among the service industries. Such input costs included price hikes in consumables like fruits and vegetables, as well as labor costs. Consequently, this has propelled a continuous rise in operating expenses through the month under review. It is noteworthy, though, that despite the ongoing inflation, the rate has decelerated in comparison to what was experienced in March.
Service firms are confident and have responded to the robust demand by passing on the additional costs incurred to their clients. With that said, the pace of increase in output prices has softened, coming down from the seven-year peak recorded in March. According to Pranjul Bhandari, the chief economist at HSBC India, there’s been a sharp rise in input costs, which has somewhat abated since March. However, this situation has squeezed margins for service providers given that only a portion of the cost rises could be transferred to clients through output charges.
The bigger picture emerges when considering the trends from both the Services and Manufacturing sectors. Together, they shed light on the private sector’s framework, where sales have reportedly escalated at one of the swiftest rates since mid-2010. The HSBC India Composite PMI Output Index, which encompasses both sectors, stood at 61.5 in April, just a hairbreadth beneath the 61.8 rate of March. This figure is slightly under what the earlier released Flash Purchasing Managers’ Index had anticipated, which estimated a 62.2 index based on 75% to 85% responses from the approximate 800 services and manufacturing entities surveyed.
In essence, while there may be a subtle ease in the service sector’s growth rate for April, clearly, the overall business activity continues to broaden with considerable strength, and firms appear to be navigating the landscape with strategic optimism for the foreseeable future.
