India's Services Sector Growth Outperforms Expectations, Reaches 13-Year High In July

India's services sector experienced its fastest expansion in 13 years last month, despite facing heightened inflationary pressures.

According to a business survey conducted on August 3, there was a significant increase in demand, leading to this positive growth.

The India services purchasing managers' index, as reported by S&P Global, rose to 62.3 in July, surpassing expectations and marking the highest reading since June 2010.

This expansion has been sustained for two years, indicating the sector's crucial role in driving India's economy.

The strong performance of the service sector highlights its importance in fueling India's economy.

Pollyanna De Lima, the economics associate director at S&P Global Market Intelligence, noted that the July PMI results suggest a notable contribution from the sector to the overall GDP for the second fiscal quarter. This resilience is a positive sign for India's economic growth.

According to the latest Reuters survey, India's economy is projected to grow by 6.2% in the July-September quarter. This forecast reflects the positive momentum of the services sector and its potential impact on the overall economy.

In addition, the overall demand remained robust, with the new business sub-index indicating a rise in demand since August 2021. In fact, the pace of growth was the highest it has been since June 2010.

Inflation in India climbed to 4.81% in June, primarily driven by soaring vegetable prices. Although this figure falls within the Reserve Bank of India's (RBI) target range of 2%-6%, it is unlikely that the central bank will make any rate cuts in the near future.

Operating costs experienced the most rapid increase since June 2022, leading some firms to pass on a portion of this burden to customers. However, they did so cautiously, resulting in the slowest pace of price adjustments in three months as they carefully considered their pricing strategies.

According to De Lima, the recent PMI price indices show that the demand for Indian services has been supported by competitive advantage. Compared to other nations, the increase in output prices in India has been modest.

While the future activity sub-index, which measures optimism, decreased from the six-month high in June due to concerns about extreme weather, the year-ahead outlook remains strong.

Firms in India have been consistently adding to their workforce for over a year. However, the rate of hiring has remained weak and showed little change from June.

In July, the manufacturing sector PMI dropped to 57.7, but the strong performance of the services sector led to an overall increase in the S&P Global India Composite PMI Output Index, reaching a 13-year high of 61.9.