Services activity expands at fastest rate in 11 years

India's service sector growth continued to strengthen in May, with companies reporting the quickest increase in business activity since April 2011, a monthly survey showed on Friday.

The seasonally adjusted S&P Global India Services PMI Business Activity Index rose to 58.9 in May from 57.9 in April, clocking the fastest rate of expansion in over 11 years. A reading above 50 indicates an overall increase in output.

The upturn was aided by a substantial pick-up in new business growth as demand continued to recover following the reopening of the economy after Covid-19 lockdowns.

"The reopening of the Indian economy continued to help lift growth in the service sector. Business activity rose at the quickest pace in over 11 years in May, supported by the fastest upturn in new orders since July 2011," says Pollyanna De Lima, economics associate director at S&P Global Market Intelligence.

Inflation outlook, however, worsened as input prices rose at the sharpest pace in the survey history. Inflation showed no signs of abating as price gauges showed an unprecedented increase in input costs and the second-fastest upturn in selling charges in less than five years.

May data marks the twenty-third successive month of rising input prices at Indian service providers. The rate of inflation climbed to the highest in 16-and-a-half years of data collection.

Elevated price pressures continued to restrict business optimism. Despite picking up from April, the overall level of sentiment among service providers was historically subdued, says Lima.

Services firms reported substantial pressure from food, fuel, input, labour and transportation costs. But companies continued to transfer rising cost burdens to customers via upward adjustments to selling prices.

Despite remaining optimistic towards the 12-month outlook for business activity, firms remained concerned that inflationary pressures would dampen the economic recovery. The overall level of positive sentiment improved from April, but remained historically low.

There was a further increase in outstanding business among services firms during May. "The rise was fifth in consecutive months and the fastest in a year, but moderate overall. Where backlogs expanded, companies associated this with greater new orders," says the survey.

Still, service providers refrained from taking on additional workers in May. In fact, there was a renewed but only marginal decline in employment.

The latest results continued to signal subdued global demand for Indian services, with new business from abroad having now declined in each month since the onset of the Covid-19 pandemic in March 2020.

Consumer services remained the brightest spot of the service economy, posting the strongest increases in both new business and output during May.