India's service sector growth recovers in October

India's service sector activity picked up pace in October, aided by favourable demand for services despite rising inflation.

The seasonally adjusted S&P Global India Services PMI Business Activity Index rose from September's six-month low of 54.3 to 55.1 in October, highlighting a faster rate of growth.

A reading above 50 indicates an overall increase in output. The headline figure was above the neutral 50 threshold for the fifteenth month running and outpaced its long-run average.

Buoyed by the ongoing recovery in new work, service providers again took on extra staff, with an improvement in business confidence also supporting hiring activity. The latest results also showed mild accelerations in inflation rates for input costs and output charges.

"The October results show us that service providers had no trouble securing new work in October, despite lifting their charges again. Hence, the sector remained firmly inside expansion territory as business activity and payroll numbers were raised to support strengthening demand," says Pollyanna De Lima, economics associate director at S&P Global Market Intelligence.

Optimism towards a more positive environment boosted job creation in October, as service providers sought to adjust capacities to accommodate for expected increases in new work, Lima says, adding that sentiment towards the year-ahead outlook for business activity improved to the highest in close to eight years.

The survey suggests that the domestic market was the main source of new business gains, as foreign sales decreased further at the start of the third fiscal quarter. Monthly deteriorations in international demand have been registered since the onset of Covid-19 in March 2020.

Indian services companies reported greater operating expenses in October, stretching the current sequence of inflation to 28 months, the survey notes. The latest increase was the most pronounced since July. Anecdotal evidence indicated that food, fuel and retail prices rose since September.

"Many companies indicated that higher food, fuel and retail prices pushed up their overall expenses in October. With some of this additional cost burden shared with customers, prices charged for the provision of services likewise rose. Rates of input cost and output charge inflation quickened from September and were above their respective averages," says Lima.

Ongoing increases in new business and output requirements continued to support job creation in the service economy. Employment rose for the fifth month in a row and at the second-fastest pace in over three years (behind August).

Optimistic growth projections also boosted job creation in October, with 30% of survey members forecasting higher volumes of business activity by October 2023.

Meanwhile, there was a mild acceleration in growth of private sector activity in India, as a stronger increase in the service economy more than offset a slowdown among goods producers. At 55.5 in October, up from 55.1 in September, the S&P Global India Composite PMI Output Index pointed to a marked rate of expansion that outpaced its long-run average, the survey shows.