India’s services growth eases to 4-month low in July on inflation pressure, weak demand

India’s dominant services industry growth eased to a four-month low in July, as inflationary pressures and weaker demand restricted gains in business activity, according to a private survey.

The S&P Global India Services Purchasing Managers’ Index eased to 55.5 in July from 59.2 in June. The index slid from an 11-month high in June and hit the lowest level since March. It also lagged the Reuters poll expectation of 58.5.

However, it remained above the 50-mark that separates growth from contraction for a year and July’s reading was higher than the long-term average.

“There were many positives in the latest results. Business activity continued to rise strongly, with a similarly robust uplift in new business as the offering of new services and marketing efforts bore fruit,” said Pollyanna De Lima, economics associate director at S&P Global Market Intelligence.

“There was, however, a noticeable loss of momentum for the Indian service economy as demand was somewhat curtailed by competitive pressures, elevated inflation and unfavourable weather.”

Disruptions to food and oil supply across the globe has heightened inflationary pressure and Asia’s third largest economy too has not been spared where retail inflation surged to an about eight-year high in April. The inflation print in India has eased to 7.01% in July. However, a weaker rupee has bumped up imported inflation.

The Reserve Bank of India (RBI) embarked on its tightening cycle in May, later than most of its peers, but is expected to front-load subsequent hikes to combat inflation.

The new business sub-index was at a four-month low but faired well on historical standards as domestic demand remained firm. New export orders contracted for a 29th straight month, since the onset of the coronavirus pandemic.

Most firms had enough manpower to handle current requirements leading to subdued job creation last month, much the same as in June.

“Services companies reported a further increase in their average expenses during July, with food, fuel, materials, staff, retail and transportation cited as the key sources of inflationary pressures. Input costs rose sharply, though at the slowest pace in five months,” according to the survey.

Firms chose to pass some of the additional costs to customers and although that pace eased from an almost five-year high set in June it was still above trend.

The overall S&P Global India Composite PMI Output Index was strong at 56.6, supported by the factory PMI that rose to its highest since November. However, the composite PMI was at a four-month low and down from 58.2 in June.


(With inputs from Reuters)

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