Buoyancy check: on the findings of the S&P Global Services PMI Business Activity Index   

India’s services sector seems to have had a great start to the financial year, if one were to go purely by the findings of the S&P Global Services PMI Business Activity Index. Based on surveys of around 400 firms across segments such as consumer services, finance and communications, the index reading stood at 62 in April — the highest seasonally adjusted figure in 153 months or nearly 13 years. A reading of over 50 on the index, constructed since 2005, indicates an expansion in activity levels relative to the previous month. To put the April number in perspective, the average PMI reading for services through 2022-23 was around 57.3. The increasing importance of the services economy to India’s total output and job creation does not need to be reiterated much. As per the second advance national income estimates for 2022-23, the Gross Value Added (GVA) growth from industry as a whole slipped to 4.1%, with manufacturing tripping to just 1.6% — both of them had grown at around 10% in 2021-22. Services’ GVA, on the other hand, is expected to have grown 9.1% during the year, accelerating from 8.4% in the previous year. Along with a pick up from the farm sector, services is expected to lift GVA growth in 2022-23 to 6.7% with GDP rising 7%.

On the trade front, India’s services exports are estimated to have hit a record $325 billion in 2022-23, reflecting a growth of almost 28% over the previous year. The strong uptick in such intangible trade and the resultant surplus vis-à-vis imports of services have significantly plugged the hole in India’s current account deficit caused by a much sharper 40% widening of the goods trade deficit, which is reckoned to have hit $267 billion during the year. Growth in services exports during March had slipped to around 3% from 29% in February. However, as per the April PMI print, along with a surge in fresh demand and output for domestic services, outbound deals also increased at the highest pace in three months. That offers some comfort amid a strengthening global slowdown in major markets for India’s IT-dominated services exports. Yet, the flurry of crises in U.S. and European financial institutions, a key clientele for India’s tech majors, for instance, remains a worry. That services exports growth could moderate going forward is corroborated by the lower earnings guidance provided by IT companies as well as their extended dithering over on-boarding young recruits. The latter is part of an uncomfortable trend captured within the PMI reading — despite April’s boom, job creation has remained negligible and input costs have resurged. Neither augurs well for sustaining domestic demand, which has already taken a hit from high inflation.