As Demand Cools, India's October Services Growth Fell to a Seven-month Low

By Consultants Review Team Friday, 03 November 2023

According to a poll released on Friday, India's dominant services industry increased at its slowest rate in seven months in October, while a small slowing in demand led to sluggish job creation, but underlying activity remained healthy and exports rose steadily. When combined with a cooling in the industrial sector last month, the result may still pose a challenge to India's economic growth forecast, which is estimated at 6.3% this fiscal year, the quickest among major countries, according to a recent Reuters poll.

Falling short of the Reuters polled forecast of 60.5, the S&P Global India Services Purchasing Managers' Index (INPMIS=ECI) dipped to 58.4 in October from 61.0 in September. Having said that, the reading was above the 50-point threshold which separates growth from contraction for the 27th month in a row. "Despite increases in business activity and new job intakes softening from September's over 13-year highs, the Indian service economy continued to register impressive growth," said Pollyanna De Lima, economics associate director at S&P Global.

"Exports was an area of particular strength in October, with new business gains from Asia, Europe and the U.S. boosting growth to its second-highest in the series over a nine-year history."

While new business grew at the weakest rate in five months, exports increased again after slowing last month after reaching a record high in August. The study noted "fierce competition and subdued demand for certain types of services," which appeared to impair the business's view for the next 12 months, with the future activity sub-index dropping to 63.5 from a nine-year high in September. Employment growth has slowed to a three-month low.

However, it did not prevent businesses from passing on increased input costs to customers, with both input prices and prices charged rising faster than the previous month due to rising food, fuel, and labor expenses.

"Although survey participants passed these additional cost burdens on to clients, permitted by demand strength, the rise in charges could have been the trigger of the deceleration in sales growth," De Lima went on to say. "Moreover, a pick-up in inflation expectations in October dampened business confidence."

This could pose a risk to retail inflation in the South Asian country, which fell to a three-month low of 5.02% in September. The overall Composite PMI dipped to 58.4 in October from 61.0 in September, as manufacturing activity expanded at its slowest rate in eight months and services growth also slowed. 


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