Service sector activities improved in March, mainly supported by strengthening demand conditions, even as input costs spiked to the highest level in 11 years during the month, according to a survey.
The seasonally adjusted S&P Global India Services PMI Business Activity Index rose from 51.8 in February to 53.6 in March, pointing to the strongest rate of expansion since last December.
For the eighth straight month, the services sector witnessed an expansion in output. In Purchasing Managers' Index (PMI) parlance, a print above 50 means expansion while a score below 50 denotes contraction.
"The war in Ukraine exacerbated lingering issues in supply chains, triggering a re-acceleration in inflation across the Indian service economy. The March results showed the sharpest upturn in input costs for 11 years, but this did not put a brake on the recovery of the sector," Pollyanna De Lima, Economics Associate Director at S&P Global, said on Wednesday.
Further, Lima noted that buoyed by the relaxation of Covid-19 restrictions, consumers were eager to go out and spend. "Service providers recorded the fastest upturn in new business in 2022 so far, with an equal outcome seen for business activity."
Firms recorded the fastest expansions in sales and activity in 2022 so far while business confidence remained subdued due to inflation concerns.
Input costs increased at the sharpest pace in 11 years at the end of the fiscal year 2021-22 but companies mostly absorbed additional cost burdens and raised their charges only moderately.
"Inflation risks continued to curb business optimism regarding growth prospects, with sentiment among services companies remaining subdued by historical standards. This lack of confidence in the outlook also meant that employment continued to fall in March," Lima said.
Inflation expectations continued to dampen business confidence in March. Companies remained upbeat about growth prospects but the overall level of sentiment remained subdued in the context of historical data, the survey said.
Meanwhile, the S&P Global India Composite PMI Output Index -- which measures combined services and manufacturing output -- was quoted at 54.3 in March, up from 53.5 in February, highlighting the strongest rate of expansion so far this year.
For the first time in seven months, input price inflation was more acute in the service economy than in the manufacturing industry. Across the private sector, cost burdens rose at the sharpest pace in almost a decade.
Meanwhile, the Reserve Bank of India (RBI) is likely to maintain the status quo on interest rates in its forthcoming monetary policy review but may change the stance in view of retail inflation piercing its upper tolerance limit, global uncertainties created by the ongoing Russia-Ukraine war, and the urgency to protect and boost growth, according to experts.
The RBI Governor-headed rate-setting panel -- Monetary Policy Committee (MPC) -- will be holding its first meeting of 2022-23 fiscal from April 6 to 8. The outcome will be announced on April 8.
