Global Economy

India's services activity grows in October after eight months of contraction


India’s services sector saw its first month of growth since the lockdown in October as business activity and new work were buoyed by relaxations in Covid-19 restrictions, according to a private survey.

The IHS Markit India Services Purchasing Managers’ Index (PMI) touched 54.1 in October, crossing over the 50-mark indicating growth, from 49.8 in the previous month, ending eight consecutive months of contraction.

With the latest figures, the composite PMI, including both manufacturing and services activity, rose to 58 in October from 54.6 a month earlier, signalling the strongest increase in private sector output in close to nine years.

The indices join a host of such indicators of economic activity that have shown record growth in October from Goods and Services Tax collections and e-way bills to railway freight volumes and auto sales, on the back of festive demand.

However, the pace of job shedding remained ‘solid’ in October for the services sector, matching that of the previous month. Similar trends in manufacturing resulted in the eight straight month of declining employment in the private sector.

“While a revival of the manufacturing industry began in August, only now the service sector started to heal,” said Pollyanna De Lima, economics associate director at IHS Markit.

The improvements in services PMI pointed to a ‘solid’ rate of growth in output that was stronger than its long run average, according to the release on Wednesday.

The data indicated the domestic market was the main source of new business gains as new orders from abroad declined further, it said. “The deterioration in international demand for Indian services was the slowest since March, but nevertheless sharper than any recorded prior to the COVID-19 outbreak.”

In aggregate terms, new orders for the private sector expanded for the second consecutive month with growth accelerating to its highest pace since January 2013. This trend was led by the manufacturing sector, which posted a decade-high growth in October as its PMI hit 58.9.

“The narrowing gap between manufacturing and services PMIs also reflects the restrictions on services are being lifted, which should bring more balance to the economic recovery,” Rahul Bajoria, chief India economist at Barclays said in a note.

Input cost inflation
Services companies continued to report rising expenses taking the trend to four consecutive months with the latest increase being the strongest since February. Survey panelists attributed the rise to higher fuel costs, maintenance and material prices.

Apart from a stabilisation of input costs in information and communication firms, rising inflation was recorded in the remaining four sub-sectors that are tracked.

At the composite level, the inflationary trend continued for the eight straight months, but as with the services sector as well, output prices rose only marginally in October.

Employment and outlook
The services sector reported payroll contraction across the five monitored sub-sectors in October amid reports of workers on leave failing to return and difficulties in hiring staff due to the pandemic.

“Service providers noted another decline in employment, but anecdotal evidence suggested that efforts to hire had been hampered by labour shortages,” De Lima said, adding that participants indicated that workers on leave had not returned and that a widespread fear of COVID-19 contamination continued to restrict staff supply.

Positive business sentiments of services firms towards the 12-month outlook were underpinned by hopes of a Covid-19 vaccine roll out. Confidence strengthened to an eight-month high across the private sector in October.





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