India's Services Sector Records Strong Growth in August

India's services sector witnessed significant growth in August as the HSBC India Services Business Activity Index surged to 60.9. This marks its highest expansion since March, driven by productivity gains and positive demand trends. Despite rising operating expenses, the sector remains resilient, with notable performance in finance and insurance sub-sectors.

India's services sector showcased remarkable growth in August, as the HSBC India Services Business Activity Index climbed to 60.9, marking the strongest expansion since March. The index, maintained in expansion territory for thirty-seven consecutive months, underscores ongoing momentum backed by productivity gains and positive demand trends.

The August reading of 60.9, up from July's 60.3, surpassed the long-term average, indicating a resilient services economy. Chief India Economist at HSBC, Pranjul Bhandari, noted, "The Composite PMI for India continued to show robust growth in August, driven by heightened business activity in the service sector, experiencing its fastest expansion since March."

Steady productivity improvements and sustained demand propelled growth, with new orders rising for the thirty-seventh consecutive month. The rate of new order growth slightly accelerated from July, hitting its highest since April. More than a quarter of surveyed companies reported better business conditions, with only 5% indicating a decline.

Bhandari highlighted that growth was largely driven by an uptick in new domestic orders. Employment levels remained strong, although there was a marginal dip in the hiring pace compared to July. Encouragingly, input costs rose at their slowest rate in six months, mirroring trends in both the manufacturing and service sectors. Consequently, output price inflation moderated in August. Among sub-sectors, finance and insurance showed the most significant growth in output and new business, emphasizing its critical role in India's service economy.

Domestic sales were the primary growth driver, but new export business grew at a slower rate, reaching a six-month low. Despite this, export orders saw notable demand from regions including Asia, Australia, Europe, Latin America, the Middle East, and the US.

Rising operating expenses for food, labor, and transportation challenged service providers, yet the overall input cost inflation was modest, marking the weakest increase since August 2020. Fewer than 4% of companies raised their average selling prices compared to July, resulting in moderate charge inflation overall. Notably, the rise in output prices was slower than in the previous month.

Consumer Services faced the sharpest rise in input costs in August, while charge inflation was most evident in the Transport, Information, and Communication sub-sectors. Confidence in future business activity remained positive, fueled by rising backlogs and continuous growth in new business, driving job creation. However, the pace of employment growth slowed to a four-month low.

The rate of increase in outstanding business volumes also decelerated, marking its weakest point since February. Despite the overall positive sentiment, business confidence for the year ahead dropped to a 13-month low. About 21% of service providers expect increased output over the next 12 months, down from around 30% in July, as some firms voiced concerns about competitive pressures.

"The outlook for the Indian private sector over the next year has moderated, reaching its lowest in 15 months due to competitive pressure, although the Future Output Index remains above the long-term average," Bhandari added. (ANI)

(With inputs from agencies.)