Services sector in India expanded at its fastest pace in 11 years in May on strong demand, reported by Reuters.
According to a private survey report, the dominant services sector showed robust growth amid inflationary pressures which touched new highs, restricting optimism, and weighing on consumers’ pocketbooks.
The S&P Global India Services Purchasing Managers’ Index (PMI) rose to 58.9 in May from 57.9 in April, its highest since April 2011 and comfortably beating the Reuters poll expectation of 57.5.
The report mentioned that PMI in services sector stayed above the 50-mark that separates growth from contraction for a 10th consecutive month, the longest streak of expansion since 12 months of growth between June 2018 and May 2019.
Economic activity continued to normalise with the lifting of curbs due to the Covid-19 pandemic, overall demand gained at the fastest pace since July 2011.
Pollyanna De Lima, economics associate director at S&P Global Market, said, “The reopening of the Indian economy continued to help lift growth in the service sector. That said, the inflation outlook appeared to have worsened as input prices rose at the sharpest pace in the survey history.”
Those price increases led business expectations to remain historically low despite improving from April. While a few firms expected demand to rebound, others remained worried about inflationary pressures denting growth. Companies continued to pass some of the cost burden to customers, although to a lesser extent.
“Output charge inflation softened only marginally from April, being the second-highest in just under five years, as several companies mentioned the need to transfer mounting costs through to clients,” added De Lima.
India’s GDP expanded 4.1 per cent year-on-year (YoY) in January-March quarter, but a spike in retail inflation due to energy and commodity price rises caused by the Russia-Ukraine war poses a risk to its growth prospects.
The Reserve Bank of India (RBI) compelled to hike rates in an unscheduled meeting on May 4 as India is grappling with eight-year high inflation. The central bank is expected to hike rates further in coming months to tame price pressures.