India’s Nov services activity growth hit 3-month high, high inflation a concern

By Indradip Ghosh

BENGALURU (Reuters) – India’s services activity grew at its quickest pace in three months in November on strong demand, lifting optimism to its highest in eight years, according to a business survey, which also showed prices rose at the fastest rate since July 2017.

The S&P Global (NYSE:) India services purchasing managers’ index rose to 56.4 in November from 55.1 in October, beating the 55.4 estimate in a Reuters poll.

It remained above the 50-mark separating growth from contraction for a 16th straight month, its longest stretch of expansion since October 2016.

“Indian service providers continued to reap the benefits of strong domestic demand, with PMI data for the penultimate month of 2022 showing faster increases in new business and output,” noted Pollyanna De Lima, economics associate director at S&P Global.

“Moreover, expectations of demand buoyancy in the medium-term promoted further job creation.”

Official data released last week showed pent-up demand for services helped private consumption grow 9.7% annually last quarter, which helped Asia’s third-largest economy grow 6.3% during the period.

However, growth is widely expected to slow in the coming quarters as high-interest rates hamper economic activity.

The PMI showed overseas demand expanded for the first time since the pandemic started, an encouraging sign given slowing global growth has already started to hurt exports, which fell 17% over a year ago in October.

Strong demand boosted business confidence to its highest since January 2015.

However, elevated input prices forced firms to raise prices charged at the sharpest rate in about five-and-a-half years.

That could put further pressure on overall inflation, which eased to a three-month low of 6.77% in October but remained above the Reserve Bank of India’s tolerance limit.

“Evidence of stubborn inflation may prompt further hikes to the policy rate at a time when global economic challenges could negatively impact on India’s growth,” added De Lima.

The RBI, which has already raised its key interest rates by 190 basis points since May, will hike the repo rate by a smaller 35 basis points to 6.25% on Wednesday and to a peak of 6.50% by end-March, according to a Reuters poll.

Stronger expansion in services activity alongside better-than-expected manufacturing growth boosted the composite index to a three-month high of 56.7 in November from 55.5 in October.

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