PMI: Services activity expands in November but records slight dip

Ahead of MPC meet, data shows input price pressures rise

Activities in services, the dominating sector of India’s economy, expanded in November as restrictions were eased for the tertiary sector, even as the index to measure them dropped marginally from last month.

However, restrictions on international travel caused demand to slacken overseas, showed IHS Markit purchasing managers’ index (PMI) survey.

PMI for services dropped moderately to 58.1 in November from a ten-and-a-half-year high of 58.4 in October. In PMI lexicon, a reading above 50 means growth and the one below this mark denotes contraction.

This along with PMI for manufacturing — which hit a 10-month high in November — indicates a robust economic performance by the private sector in the first two months of the third quarter (Q3) of the current financial year. GDP grew 8.4 per cent during Q2 year-on-year, but was only marginally up — by 0.3 per cent — compared to the corresponding pre-Covid period of 2019-20. “Looking at the manufacturing and service sectors combined, the results are even more encouraging and bode well for economic performance in the Q3 so far,” said Pollyanna De Lima, economics associate director at IHS Markit.

Services companies saw sustained increases in new work and ongoing improvements in market conditions. New business received by service providers rose at a broadly similar rate to that recorded in October.

Successful marketing, strengthening demand and favourable market conditions were among the reasons cited for sales growth, a commentary associated with the survey said.

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.

While a few firms transferred higher input costs through to their clients by raising prices, the vast majority kept their fee unchanged from October. As a result, output charges rose at a moderate rate that was slower than in the prior month.

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 firms expect demand to continue to trend higher, but several others were worried that elevated inflation could dampen the recovery. This may cast a shadow on the Reserve Bank of India's monetary policy committee (MPC)’s stance next week.

Barclays India chief economist Rahul Bajoria said, “Overall, we still believe policymakers remain on track to initiate monetary policy normalisation. We continue to expect the RBI to hike the reverse repo rate by 20 basis points (bps) during next week’s policy meeting.”

Service providers were able to comfortably accommodate for rising inflows of new business, as signalled by another decline in outstanding business volumes.

 Backlogs fell for the fourth month running in November, albeit marginally. This general lack of pressure on capacities meant that employment levels were little-changed from October, with the respective index edging closer to the critical 50 threshold.