Services PMI rises for 4th month

Inflation a concern; firms confident of a rise in output

Activity in the services sector expanded for the fourth straight month in January as the Covid-19 vaccination roll-out drove business optimism, a private survey showed on Wednesday.

The IHS Markit India Services Business Activity Index rose to 52.8 in January, from 52.3 in December, suggesting the pace of growth was moderate. The 50-point mark separates expansion from contraction.

“The service sector enjoyed good levels of activity in January, with new business volumes rising for the fourth successive month and growth rates for both measures picking up from December,” said Pollyanna De Lima, Economics Associate Director at IHS Markit. “The sector looks set to sustain growth and confidence towards hiring may improve as Covid-19 concerns diminish.”

Though the pace of growth accelerated from December, the headline figure remained below its long-term average of 53.3 and was consistent with a moderate pace of growth, the survey said.

The rise in new business continued to be driven by the domestic market even as new export work dropped further as travel restrictions and the pandemic dampened international demand for services.

Price discounting strategies helped total new orders. Marketing efforts, the reopening of some establishments and strengthening demand supported the increase in sales. The goods and services tax collection touched a record high of ~1.19 trillion in January.

On the inflation front, input costs increased for the seventh straight month, with monitored companies reporting higher prices for fuel and a wide range of materials. “The main area of concern is the extent to which costs are rising across the services economy, with the rate of inflation remaining above trend despite easing from December,” Lima said.

Besides, higher costs have prevented firms from taking on additional staff, with the PMI survey showing a second successive fall in employment.

Firms were confident of a rise in output in the next 12 months. Positive sentiment was supported by beliefs that the roll-out of vaccines would underpin demand growth and improvements in the wider economy. The overall degree of optimism was at an 11-month high.

The composite index, including manufacturing and services, edged up to 55.8 in January, from 54.9 in December.