Economic Indicators

India’s service sector is starting to slow down

2023.02.03 03:54

India's service sector is starting to slow down
India’s service sector is starting to slow down

India’s service sector is starting to slow down

By Ray Johnson

Budrigannews.com – A private business survey found on Friday that companies’ business outlooks for the year were tempered as a result of softening orders, which caused robust growth in India’s services industry to slow last month after reaching a six-month high in December.

The South Asian nation’s economy is expected to expand by 6.0% to 6.8% next fiscal year, according to the government this week. This is lower than the 7.0% growth that was predicted for this year due to weaker global demand.

However, in her budget speech on Wednesday, Finance Minister Nirmala Sitharaman stated that the Indian economy was “heading towards a bright future” in spite of obstacles.

The Global S&P (NYSE:) The India services Purchasing Managers’ Index (PMI) dropped from 58.5 in December to 57.2 in January, falling short of a Reuters poll’s expectation of 58.1 but remaining above the 50-mark that separates growth from contraction for the 18th consecutive month.

According to Pollyanna De Lima, an economics associate director at S&P Global Market Intelligence, “growth across the service sector lost some momentum at the start of the year” as evidenced by the manufacturing PMI results earlier in the week.

“However, the survey revealed to us that service providers received a significant amount of new business, preserving the historically high rate of growth. Because of demand resilience, output also continued to grow at a generally rapid pace.

She also mentioned that, after resuming in December, service sector input cost inflation slowed to a two-year low in January, assisting in a slower and only moderate increase in selling prices.

The rate of price increases was the slowest since March 2022. Despite the fact that some companies chose not to raise their prices in order to boost sales, others claimed that demand resilience allowed them to pass on additional costs to customers.

This also showed up in the country’s annual retail inflation rate, which dropped from 5.88% in November to 5.72 percent in December.

However, the new export business sub-index, which had reached a high of more than three years earlier in the month, contracted for the first time since October.

The overall level of confidence fell to a six-month low in January, and 80% of businesses predicted that output levels would not change in the coming year. This had a negative impact on the business outlook.

De Lima added:

“The most recent results highlighted some caution among service providers, partially evidenced by the vast majority of firms predicting no change in output from current levels.”

“In January, it appeared that this somewhat subdued level of confidence regarding the outlook had stymied job creation.”

The employment index was just slightly above breakeven and at a level that was last seen in July, despite being in expansionary territory for an eighth month in a row.

The composite index decreased from its near-11-year high of 59.4 in the previous month to 57.5 as a result of lower readings for the manufacturing and services sectors.

The Reserve Bank of India’s decision-making may be affected by this. At its meeting next week, the central bank is expected to raise interest rates for the last time in the current cycle by 25 basis points.

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India’s service sector is starting to slow down

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