India's services sector growth moderates in November, employment rise fastest since 2005

A monthly survey on Wednesday, says that India's services sector PMI fell marginally to 58.4 in November, despite robust employment growth this month. The seasonally adjusted HSBC India Services Business Activity Index fell marginally to 58.4 from 58.5 in October, as sales growth slowed. Last month, the country's services PMI managed to recover from its 10-month low.

In the language of the Purchasing Managers' Index (PMI), a reading above 50 indicates expansion, while a reading below 50 indicates contraction. "India recorded a services PMI of 58.4 in November, only marginally lower than the previous month's 58.5. During November, employment in the services sector grew significantly, the fastest since the survey began in 2005," said Pranjul Bhandari, chief India economist at HSBC.

"The job jump reflects improved business confidence in the sector, a rise in new orders, and strong international demand. At the same time, higher food and labor costs pushed input and output prices to the fastest rates in 15 months and nearly 12 years, respectively," Bhandari said.

Survey panelists continued to point to improving international demand for their services, while new export orders grew at the fastest pace in three months, but this was well below the growth seen at mid-year.

Companies in the private sector reported that strength in demand supported further growth in new business and production in November. The sustained growth in sales contributed to capacity pressures which encouraged companies to hire staff at the fastest pace since comparable data became available 19 years ago. Apart from the increasing input prices, labor costs drove inflation upwards. Overall, expenditure and output charges increased at the fastest rate in 15 months and nearly 12 years respectively.

The strengthening of cost pressures reportedly encouraged service providers to lift their own charges in November. The November results also suggested a heightened squeeze on service providers' capacity. Service providers were more optimistic about the outlook for business activity over the coming year. According to the PMI survey, confidence improved to the greatest extent since May. Marketing efforts driven by forecasts and expectations of continued strength of demand may drive new business.