Services sector abuzz, butvirus woes weigh

Travel restrictions due to the spread of the Omicron variant may hit services

India’s services activity remained elevated in November, recording a marginal drop from the previous month, after registering the strongest growth in ten and-ahalf years in October.

Data released IHS Markit on Friday showed Purchasing Managers’ Index (PMI) for services eased to 58.1 in November from 58.4 in October. A reading above 50 indicates expansion in economic activity.

“PMI data for November indicated the Indian service sector continued to strengthen, with a substantial upturn in new orders underpinning output growth. According to monitored companies, the upturn reflected sustained increases in new work and ongoing improvements in market conditions,” the data analytics company said.

Earlier this week, IHS Markit released data showing India’s manufacturing PMI hit a 10-month high in November, as companies scaled up input buying.

However, travel restrictions by many countries due to the spread of the Omicron variant may hit services activity in coming months.

IHS Markit said although business confidence improved to a three- month high in November, the overall level of positive sentiment was well below its long-run average.

“Some companies expect demand to continue to trend higher, but several others were worried that elevated inflation could dampen recovery. Input costs rose at the second strongest pace in close to 10 years, while the rate of charge inflation softened from October’s recent high. While a few firms transferred higher input costs through to clients, the vast majority kept their fees unchanged from October,” it added.

Amid reports of higher fuel, labour, material, retail and transportation costs, average input prices among services companies rose further in November.

The overall rate of inflation quickened from October and was the second strongest in almost a decade, behind April, IHS Markit said.

However, travel restrictions by many countries may hit services activity in coming days. “The covid pandemic and travel restrictions reportedly caused a further drop in international demand for Indian services. The latest fall in external sales was the twenty-first in successive months, although among the slowest over this period,” the data analytics firm said.

Pollyanna De Lima, economics associate director at IHS Markit, said recovery of the Indian service sector was extended to November, with a robust improvement in sales enabling the second-fastest rise in business activity in nearly 10-and-a-half-years.

India’s GDP for second quarter grew by 8.4% from a year ago, one of the fastest rates among major economies.