India’s services sector growth falls to 4-month low in July

A monthly survey reported on Wednesday that India’s services sector lost momentum in July as demand shrank due to competitive pressures, rising inflation and unfavorable weather.

The S&P Global India Services PMI seasonally adjusted business activity fell from 59.2 in June to 55.5 in July, indicating the slowest growth rate in four months.

For the 12th consecutive month, the services sector witnessed an expansion in production. In PMI parlance, a print above 50 indicates expansion while a score below 50 indicates contraction.

According to the survey, service providers who reported increased sales in July cited favorable demand conditions and fruitful advertising. But survey respondents said growth has been dampened by fierce competition and unfavorable weather.

According to Poliana de Lima, associate economic director at S&P Global Market Intelligence, there has been a “notable loss of momentum for the Indian services economy as demand shrank somewhat due to competitive pressures, high inflation and unfavorable weather. Both production and sales increased at the weakest rates for four months” .

The study said the domestic market remained the main source of sales growth as international demand for Indian services worsened.

Meanwhile, business sentiment in the services economy ebbed in July, with only 5 per cent of firms forecasting production growth next year, while the vast majority (94 per cent) of firms do not expect any change in business activity from current levels.

On the price front, service companies reported another increase in their average expenditures during July, with food, fuel, materials, staff, retail and transportation cited as the main sources of inflationary pressures. Input costs rose sharply, albeit at the slowest pace in five months.

Service firms struggling to maintain profit margins also welcomed a slight easing in cost inflation pressures to a five-month low, contributed to a slight rise in charged prices. However, survey respondents again reported significant pressures from food, fuel, inputs, labour, retail and transportation costs.

On the jobs front, July data showed a slight increase in employment in the service sector across India. The job creation rate was both fractional and broadly similar to June. The vast majority of companies left salary numbers unchanged amid the lack of a need to increase the workforce.

Meanwhile, India’s S&P Global Composite PMI – which measures combined services and manufacturing output – fell from 58.2 in June to 56.6, highlighting the slowest increase since March.

“New business growth in the manufacturing industry rebounded with a slowdown in the services economy. At a composite level, sales increased sharply but at the weakest pace in four months.

According to official data, retail inflation based on the Consumer Price Index (CPI), which the Reserve Bank of India (RBI) was a factor in when arriving at its monetary policy, has been higher than 6 percent since January 2022. It was at 7.01 percent in June.

Experts believe that the Reserve Bank of India may raise the interest rate for the third time in a row by at least 35 basis points to check the rise in retail inflation.

The Reserve Bank of India’s interest rate-setting committee – the Monetary Policy Committee – will meet for three days from August 3 to deliberate on the prevailing economic situation and announce its bi-monthly review on Friday.

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