India's Service Sector Growth Rate Hits a Six-Month High

India’s service sector activity increased at its fastest rate in six months at the end of 2022, fuelling business confidence for the year ahead, a private-sector survey showed.

The S&P Global India services purchasing managers’ index (PMI) was 58.5 in December, rising from 56.4 in November. This marked the 17th straight month above the 50 mark separating growth from contraction – the longest stretch of growth since June 2013.

“As we head into 2023, companies signalled strong optimism towards the outlook for output,” noted Pollyanna De Lima, economics associate director at S&P Global Market Intelligence.

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“Inflation trends were mixed, as input prices rose at a faster pace and the upturn in charges moderated.”

Expenses rose faster due to greater energy, food, staff and transportation costs so prices charged remained elevated despite moderating slightly from November, when they rose at the quickest rate since July 2017.

Inflationary Pressure

This could elevate India’s retail inflation which eased to 5.88% in November, below the top of the Reserve Bank of India’s target band of 4%-6% for the first time in 2022.

Hiring hit a five-month low, albeit in expansionary territory, even though the new business sub-index rose to a four-month high due to strong demand.

“Positive sentiment and ongoing growth of new business continued to support job creation, but there were areas where capacities were reportedly adequate to cope with current requirements,” De Lima added.

As global growth slows and inflation remains high in most countries, India is seen as a bright spot as its growth was expected to be faster than that of many other economies.

Thanks to the growth in services as well as in manufacturing, the composite index rose to 59.4 in December, the highest since January 2012, from 56.7 in November.