In August, a survey revealed that activity in India’s leading services sector increased at its fastest pace in five months, as demand stayed strong despite reduced inflationary pressures.

In August, India’s services sector growth reached a five-month peak. According to a survey, the HSBC final India Services Purchasing Managers’ Index, compiled by S&P Global, climbed to 60.9, surpassing July’s 60.3 and exceeding the initial estimate of 60.4.

The reading, above the 50-mark separating growth from contraction since August 2021, was higher than the long-term average and marked the highest level since March.

Pranjul Bhandari, HSBC’s chief India economist, stated, “This growth was largely fuelled by an increase in new orders, particularly domestic orders.”

The new business sub-index increased slightly from July to reach a four-month high, surpassing its historical average. While international demand remained strong, its growth rate declined significantly from July to a six-month low.

Similarly, although business confidence stayed positive in August, it dropped to its lowest level over a year. Companies were optimistic about demand resilience and anticipated improved growth in the upcoming year. Despite slowing to its weakest level since April, hiring in the services sector continued steadily.

Last month, cost pressures rose moderately due to elevated food, labour, and transportation costs. However, the increase faced by service providers decelerated to a four-year low.

Bhandari added that on a positive note, input costs increased at their slowest pace in six months, with both the manufacturing and service sectors showing the same trend. Consequently, output price inflation declined in August. With inflationary pressure easing, companies passed on costs to clients much slower than in July.

In July, data indicated that inflation in India declined to a five-year low of 3.54%, reflecting a high-base effect suggesting the slowdown was temporary. According to a Reuters poll, inflation is expected to average 4.2% this quarter and 4.6% next.

On Monday, a manufacturing Purchasing Managers’ Index (PMI) dropped to a three-month low of 57.5 in August. However, the improvement in service activity kept the overall Composite PMI unchanged from July’s 60.7, in August as well.

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