Wednesday, 09 Oct, 2024
By: Yash Gupte
A score above 50 on the Purchasing Managers' Index (PMI) indicates expansion, while a number below 50 indicates contraction. Image Source: IANS
The S&P Global India Services PMI Business Activity Index increased from 57.8 in March to 62 in April, indicating the fastest expansion in output since mid-2010, amid a pick-up in new business growth and favourable market conditions.
According to a private poll released on Wednesday, the services industry in India has had the highest growth in new business and output in over 13 years. The S&P Global India Services PMI Business Activity Index increased from 57.8 in March to 62 in April, indicating the fastest expansion in output since mid-2010, amid a pick-up in new business growth and favourable market conditions. The headline figure was above the neutral 50 level for the 21st consecutive month. A score above 50 on the Purchasing Managers' Index (PMI) indicates expansion, while a number below 50 indicates recession. In April, monitored companies indicated a rise in demand for Indian services abroad. The third month in a row saw the fastest growth of new export business during this time.
The biggest causes of inflation, according to poll participants, were food, gasoline, medication, transportation, and wages. The fastest increase in average expenses was seen in consumer services. Services organisations were forced to increase their selling prices in April as a result of both growing input costs and a resilient demand environment. The pace of price inflation was noticeable and the highest so far in 2023. Despite a significant increase in new orders, the service sector's workforce levels only slightly rose at the beginning of the first fiscal quarter. While some companies increased headcounts in response to increasing output demands, the vast majority did not because there were enough workers to meet current needs.
Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence said, "India's service sector posted a remarkable performance in April, with demand strength backing the strongest increases in new business and output in just under 13 years. Finance & Insurance was the brightest spot, topping the sectoral growth rankings for both measures.”
Source: S&P Global India Services PMI Business Activity Index
The services industry not only makes up the majority of India's GDP, but it has also drawn substantial foreign investment, made a big contribution to exports, and created a significant amount of jobs. The services industry in India encompasses a wide range of endeavours, including trade, lodging and dining, transportation, storage and communication, financial services, insurance, real estate, business services, community, social and personal services, as well as services related to construction. The service sector contributed the highest to India’s GDP.
Source: World Bank
The rise in service sector PMI along with increase in service trade and inflation below RBI’s threshold of 6 percent indicates that Indian economy is on a road of recovery and is growing at a good pace.
The Reserve Bank of India is likely to stay on the side of caution and retain its benchmark interest rate rather than lowering it any time soon in light of rising price pressures and a stronger economic outlook.
The government has mandated the Reserve Bank of India to maintain the retail inflation at 4 percent with a margin of 2 percent on either side for a five-year period ending March 2026. The retail inflation has come down to its lowest level since December 2021. March has been the first month in the calendar year 2023 which has witnessed the CPI falling below the 6 percent mark. According to experts, the inflation is expected to remain below 6 percent in the coming months helped by a high base, which may allow RBI to maintain pause in the next monetary policy review in June.
Source: Ministry of Statistics and Programme Implementation
The CPI is heavily weighted by the RBI while formulating its bi-monthly monetary policy. The repo rate was recently increased on February 08, 2023 by the Monetary Policy Committee (MPC) by 25 basis points (bps), bringing it to 6.50 percent. The MPC had increased the benchmark interest rate by 250 basis points in the fiscal year 2022-23 in an effort to control the raging inflation. However, though the RBI was expected to increase the repo rate by 25 basis points to 6.75 percent, highest till date, the Reserve Bank of India’s (RBI) monetary policy committee (MPC) on Thursday, April 6, 2023 decided not to hike the repo rate and kept is steady at 6.5 percent.
As both manufacturing and services activity remained robust, the S&P Global India Composite PMI Output Index increased to 61.6 in April, the highest level since July 2010. April saw a four-month high in India's industrial activity thanks to new orders and ideal operating conditions.
Also, the combined Index of Eight Core Industries (ICI) increased by 3.6 per cent (provisional) in March 2023 as compared to the Index of March 2022. The production of Coal, Fertilizers, Steel, Natural Gas and Refinery Products increased in March 2023 over the corresponding month of last year. ICI measures combined and individual performance of production of eight core industries viz. Coal, Crude Oil, Natural Gas, Refinery Products, Fertilizers, Steel, Cement and Electricity. The Eight Core Industries comprise 40.27 percent of the weight of items included in the Index of Industrial Production (IIP).
Source: Ministry of Commerce and Industry
Talking about India’s service trade, the value of services export for March 2023 was $27.75 Billion, as compared to $26.95 Billion in March 2022. The value of services import for March 2023 was $14.07 Billion as compared to $15.35 Billion in March 2022. The country’s service trade in FY2022-23 was recorded at $322.72 billion as compared to $254.53 billion in FY2021-22. In case of import of services, in FY2022-23 services worth $177.94 were imported as compared to $147.01 billion in FY2021-22. The data clearly indicates that the trade of services is extremely beneficial for India as the India has a trade surplus in case of services unlike the merchandise. In case of merchandise, India has been experiencing a trade deficit whereas in the case of service trade, it has been recording a trade surplus of $144.78 in FY2022-23 as against $107.52 billion in FY2021-22.
Source: Ministry of Commerce and Industry
According to Arun Kumar Garodia, Chairman of Engineering Export Promotion Council of India, “The impact of economic slowdown in major advanced economies has been visible in global trade. However, India has still managed to minimise the impact by taking several policy measures such as expanding the rupee trade, roll-back of export duty on specified steel products, and easing procedures.”
The government has projected a 10.5 percent growth in revenues from corporate and individual income tax to Rs 18.23 lakh crore in the current fiscal. Direct tax revenue, which includes income and corporate taxes, is anticipated to increase by more than 17 percent in FY23-24. Also, it must be noted that the FY22-23 has also witnessed record growth in gross corporate income tax (CIT) and gross personal income tax. This shows that in spite of tax cuts announced by the Finance Minister in the Union Budget 2023-24, there has been a significant growth in the collection of corporate income tax. The central government’s direct tax collection has increased more than four times in last 12 years. The direct tax collection in the FY2010-11 was Rs 4,45,994 crore this increased to Rs 8,49,713 crore in FY2016-17 and now it has further increased to Rs 16,61,000 crore in FY2022-23. The direct tax collection for the FY2022-23 is record high till date.
Source: Ministry of Finance
Also, the gross corporate tax collection (provisional) for the fiscal year 2022–23 is Rs. 10,04,118 crore and has increased by 16.91 percent from the previous year's gross corporate tax collection of Rs. 8,58,849 crore. Increase in corporate tax collections indicates growth in service and manufacturing sector.
