Services Sector Activities Touch 5-Month High In April Amid Mounting Price Pressures

Services sector activities improved further and touched a five-month high in April driven by a surge in incoming new work orders that boosted business activity and supported a renewed increase in employment, according to a survey.

The seasonally adjusted S&P Global India Services PMI Business Activity Index jumped to 57.9 in April, from 53.6 in March, highlighting a sharp rate of expansion that was the fastest since last November amid mounting price pressures.

For the ninth straight month, the services sector witnessed an expansion in output. In Purchasing Managers' Index (PMI) parlance, a print above 50 means expansion while a score below 50 denotes contraction.

"In isolation, the PMI data for the services sector were mostly encouraging, as surging demand underpinned quicker increases in new business inflows and output," said Pollyanna De Lima, Economics Associate Director at S&P Global.

The Indian services sector growth continued to gain momentum amid a near-record upturn in input costs. Selling prices rose at the fastest rate since July 2017 and inflation concerns continued to dampen business confidence, the survey noted.

"Service providers reported having paid more for food, fuel and materials, with some mentions of higher wage costs also pushing up overall expenses. The overall rate of inflation quickened to the second-highest in the survey history, leading companies to hike their selling prices to the greatest extent in close to five years," Lima added.

Survey members continued to suggest that the lifting of COVID-19 restrictions led to greater consumer footfall and a general improvement in demand.

Inflation concerns restricted business confidence in April. Although still positive overall, the level of sentiment slipped from March and was much lower than its long-run average.

On the employment front, companies resumed their hiring efforts in April, as seen by the first increase in employment since last November. Those firms that took on extra staff linked the rise to ongoing growth of new business, the survey said.

Lima further noted that "consumer Services and Finance & Insurance were the top-performing areas of the service economy, while Real Estate & Business Services was the only sub-sector to post contractions in sales and output."

Meanwhile, the S&P Global India Composite PMI Output Index -- which measures combined services and manufacturing output -- rose from 54.3 in March to 57.6 in April, highlighting the quickest pace of growth in five months.

The April data pointed to renewed job creation in the private sector, with slight increases in employment seen among manufacturing firms and their services counterparts.

Meanwhile, the Reserve Bank of India (RBI) hiked its key interest rate by 40 basis points in a surprise move on Wednesday in an effort to tame inflation that has remained stubbornly above the target in recent months.

The RBI also hiked the cash reserve ratio (CRR) by 50 basis points to 4.5 per cent, which will now require banks to park more money with the central bank and leave them with less money to lend to consumers.

This would drain Rs 87,000 crore of liquidity from the banking system, RBI Governor Shaktikanta Das said.

The RBI Governor-headed monetary policy committee (MPC) is scheduled to meet on June 8 and analysts expect it to again raise the repo rate by at least 25 basis points.