Service sector activity dips to six-month low amid inflationary pressures: report

Activity in the Indian services sector fell to its lowest level in six months in September, as new business inflows rose at the lowest pace since March. amid inflationary pressures and competitive conditions, according to a monthly survey. The seasonally adjusted S&P Global India Services PMI Business Activity Index fell to 54.3 in September from 57.2 in August, signaling the weakest growth rate since March.

For the fourteenth month in a row, the services sector witnessed a growth in production. In Purchasing Managers’ Index (PMI) parlance, a print above 50 means expansion, while a score below 50 indicates contraction.

“India’s services sector has overcome many setbacks in recent months, and the latest PMI data continues to show strong performance despite a loss of growth momentum in September,” said Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence. The rebound was reportedly limited by price pressures, an increasingly competitive environment and unfavorable government policies, the study said.

Lima further noted that the sharp depreciation of the rupee towards the end of the month due to interest rate hikes in the US poses an additional challenge to the Indian economy.

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“Currency instability is fueling renewed inflation concerns as imported items become more expensive, and no doubt means that the RBI will continue to raise interest rates to protect the rupee and mitigate price pressures,” Lima said.

On September 30, the monetary policy committee (MPC) of the Reserve Bank of India (RBI) raised the key lending or repo rate to 5.90 percent – the highest since April 2019.

The MPC also decided to remain focused on withdrawing the accommodative policy stance to ensure inflation remains within target in the future while supporting growth, said RBI Governor Shaktikanta Das.

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According to Lima, a rebound in inflation could hurt consumer spending, dampen business confidence and test the resilience of India’s services sector in the coming months, but service providers were strongly optimistic about growth prospects for at least September.

The survey also found that weak foreign demand weighed on overall sales, with international orders falling further in September. Monthly contractions have been recorded in every month since the onset of COVID-19.

The data pointed to a continued rebound in business confidence, with sentiment at its highest level in more than seven and a half years. Service providers signaled a further increase in their operating costs in September as a result of higher energy, food, labor and material costs.

On the employment front, while capacity pressures eased in September, efforts to clear pending workloads and continued sales expansions supported another round of job creation. However, employment rose more slowly than in August, the survey said.

Meanwhile, the S&P Global India Composite PMI Output Index, which measures combined production of services and manufacturing, fell from 58.2 in August to 55.1 in September, signaling the weakest rate of growth since March. Private sector sales rose at the weakest pace in six months, amid weaker gains in manufacturing and service economies.

The S&P Global India Services PMI® was compiled by S&P Global based on responses to questionnaires sent to a panel of approximately 400 companies in the service industry. The panel is stratified by detailed sector and company workforce size, based on contributions to GDP. Data collection started in December 2005.

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