Services PMI rises to 59.2 in June, highest since April 2011

India's services activity expanded again in June, with the S&P Global India Services Purchasing Managers' Index (PMI) coming in at 59.2, data released on July 5 showed.

At 59.2, the June services PMI is the highest since April 2011. In May, the services PMI was 58.9.

A reading above 50 indicates expansion in activity, while a sub-50 print is a sign of contraction.

"Services firms noted a substantial upturn in new work intakes at the end of the first fiscal quarter, with the rate of increase improving to the best in over 11 years. Where growth was signalled, survey members commented on strengthening demand conditions, expanded client bases and fruitful marketing," S&P Global said in a statement.

"Demand for services improved to the greatest extent since February 2011, supporting a robust economic expansion for the sector over the first quarter of FY23 and setting the scene for another substantial upturn in output next month," noted Pollyanna De Lima, economics associate director at S&P Global Market Intelligence.

However, in addition to strengthening demand, the overriding theme of the PMI data was higher prices.

According to S&P Global, "unrelenting inflation" continued to be a concern for businesses. Input cost inflation remained elevated by historical standards, although it did ease to a three-month low in June.

These higher input costs were passed on to consumers, with June witnessing the fastest rise in selling prices since July 2017.

Elevated inflation has forced the Reserve Bank of India to increase interest rates by 90 basis points so far in FY23. The latest headline retail inflation of 7.04 percent for May was the 32nd consecutive month it had come in above the medium-term target of 4 percent and fifth month in a row it was above the 6 percent upper-bound of the 2-6 percent tolerance range.

If strengthening demand allowed services companies to raise sale prices, it also tested their capacities. While 94 percent of surveyed companies did not increase hiring, others did, resulting in a marginal increase in services employment in June.

Outstanding business of the services sector increased for the sixth month in a row in June and the most since February 2021.

The rise in the services PMI comes after data released on July 1 showed the manufacturing index fell to a nine-month low of 53.9 in June.

The decline in the manufacturing PMI was enough to pull down the composite index for last month. As per data released on July 5, the composite PMI for June inched down to 58.2 from 58.3 in May.