For services, April brings high costs with fast growth

New business and output from India’s services sector grew at the fastest pace in five months in April, even as selling prices surged at the sharpest rate since July 2017 amid a near-record upturn in input costs, as per the S&P Global India Services PMI, which increased from 53.6 in March to 57.9 in April.

Inflation concerns continued to dampen business confidence, even as employment increased for the first time in five months, as per the survey-based index. A reading of 50 on the PMI signals no change in business activity.

“International demand for Indian services worsened in April, a trend that has been recorded in each month since the onset of COVID-19 in March 2020. New orders from abroad fell at a marked pace that was the quickest since September 2021,” S&P Global said.

Real estate and business services sectors were the only ones to report a contraction in new orders and output during April, while consumer services, finance and insurance were the best performers.

Businesses reported higher chemical, food, fuel, labour, material and retail costs in April with the overall inflation in inputs rising at the second-strongest pace since PMI data collection started in 2005. Some firms also reported higher wage costs, which escalated overall expenses.

“Yet, 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 firm said.

S&P Global economics associate director Pollyanna De Lima said the service economy followed manufacturing in gaining growth momentum at the start of fiscal year 2022-23. “In isolation, the PMI data for the service sector were mostly encouraging, as surging demand underpinned quicker increases in new business inflows and output,” she said.

Price pressures resurged in April, Ms. De Lima said, leading companies to hike their selling prices to the greatest extent in close to five years.   

The consumer services sector experienced the sharpest increase in input costs, while transport, information and communication sectors reported the highest pass-through of costs to retail consumers.