Services PMI expands for 4th straight month as vaccine drive fuels optimism

Though growth began accelerating in December, headline figure remained below its long-run average of 53.3 and was consistent with a moderate pace of growth

Activity in India’s 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 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. But it should be noted that the PMI is a month-over-month indicator, showing improvement over the previous month, and not over the previous year.

"The Indian services 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 service sector looks set to sustain growth and confidence towards hiring may improve as COVID-19 concerns diminish,” De Lima added.

Though the pace of growth began accelerating in December, the headline figure remained below its long-run average of 53.3 and was consistent with a moderate pace of growth, the survey said.

The data comes a couple of days after finance minister Nirmala Sitharman presented a growth-oriented budget for 2021-22 with a focus on increased spending to rescue the economy from the impact of the pandemic. The fiscal deficit has been pegged at 9.5 per cent of GDP for FY21 and 6.8 per cent for FY22. The economic survey has estimated economic growth at 11 per cent for FY22.

According to the PMI survey, 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 COVID-19 pandemic dampened international demand for services.

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

On the inflation front, input costs increased for the seventh straight month at the start of 2021, 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.

Going forward, service providers were confident of a rise in output in the coming 12 months on the back of beliefs that the roll-out of Covid-19 vaccines would underpin demand growth and improvements in the wider economy. The overall degree of optimism was at an 11-month high.

Looking ahead, service providers were confident of a rise in output in the coming 12 months. Positive sentiment was supported by beliefs that the roll-out of Covid-19 vaccines would underpin demand growth and improvements in the wider economy. The overall degree of optimism was at an 11-month high.

Meanwhile, the seasonally adjusted IHS Markit India Manufacturing Purchasing Managers' Index released on Monday showed that manufacturing activity rose the fastest in three months at 57.7 in January compared to 56.4 in December.

The Composite PMI Output Index, which accounts for both manufacturing and services edged up to 55.8 in January, from 54.9 in December as business activity across the private sector expanded at a marked and accelerated pace at the start of 2021.