Services Sector

PMI suggests Services activity hit 12-year high


From UPSC perspective, the following things are important :

Prelims level: Tertiary Sector, PMI

Mains level: India's services economy


The Purchasing Managers Index (PMI) for the services sector in India rose to 55.3 in February. This marks the highest level of the PMI in the services sector in 12 years, driven by an increase in new business orders and employment.

Service Sector

The service sector, also known as the tertiary sector, includes a wide range of economic activities that are focused on providing intangible goods and services to customers.

Some examples of activities that fall under the service sector include:

  1. Hospitality and tourism: This includes activities such as hotels, restaurants, travel agencies, and tour operators.
  2. Retail and wholesale trade: This includes businesses that buy and sell goods, such as supermarkets, department stores, and online retailers.
  3. Financial services: This includes banks, insurance companies, and investment firms.
  4. Professional and business services: This includes activities such as legal services, accounting, consulting, and advertising.
  5. Information and communication technology: This includes activities such as software development, telecommunications, and data processing.
  6. Healthcare and social assistance: This includes activities such as hospitals, clinics, nursing homes, and social services.
  7. Education and training: This includes activities such as schools, colleges, universities, and vocational training.
  8. Transportation and logistics: This includes activities such as shipping, warehousing, and distribution.

Purchasing Managers’ Index

  • PMI is an indicator of business activity — both in the manufacturing and services sectors.
  • The S&P Global India Services PMI is compiled by S&P Global from responses to questionnaires sent to a panel of around 400 service sector companies.
  • It is a survey-based measure that asks the respondents about changes in their perception of some key business variables from the month before.
  • It is calculated separately for the manufacturing and services sectors and then a composite index is constructed.

How is the PMI derived?

  • The PMI is derived from a series of qualitative questions.
  • Executives from a reasonably big sample, running into hundreds of firms, are asked whether key indicators such as output, new orders, business expectations and employment were stronger than the month before and are asked to rate them.

How does one read the PMI?

  • A figure above 50 denotes expansion in business activity. Anything below 50 denotes contraction.
  • Higher the difference from this mid-point greater the expansion or contraction. The rate of expansion can also be judged by comparing the PMI with that of the previous month data.
  • If the figure is higher than the previous month’s then the economy is expanding at a faster rate. If it is lower than the previous month then it is growing at a lower rate.

Recent trends in Services PMI

  • For the 19th straight month, the headline figure was above the neutral 50 mark, denoting expansion.
  • There was substantial moderation in cost pressures as input prices increased at the slowest pace in almost two-and-a-half years and output charge inflation softened to a 12-month low.
  • Still, capacity pressures remained mild and jobs rose only marginally.


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