India's services growth slowed to 3-month low in April, input costs soared

Growth in India's dominant services sector eased to three-month low in April but remained unexpectedly resilient even as Covid-19 crisis intensified and cost pressures rose at fastest pace in 9 years

Growth in India's dominant services sector eased to a three-month low in April but remained unexpectedly resilient even as the COVID-19 crisis intensified and cost pressures rose at the fastest pace in over nine years, a private survey showed.

The Nikkei/IHS Markit Services Purchasing Managers' Index fell to 54.0 last month from 54.6 in March, its lowest since January but still well above the 50-mark separating growth from contraction and outpacing expectations in a Reuters poll for a fall to 51.1.

"Firms foresee higher output volumes over the course of the coming year, but business sentiment was dampened by concerns surrounding the pandemic," noted Pollyanna De Lima, economics associate director at IHS Markit.

 

Despite the new business sub-index holding at the same level as in March and business expectations remaining positive, sentiment towards prospects for the year-ahead fell to a six-month low.

That chimed with a Reuters poll last week that found although economic growth forecasts have not yet been much impacted by the record-setting COVID-19 second wave, further downgrades were likely.

India's tally of coronavirus infections surged past 20 million on Tuesday, boosted by 357,229 new cases over the last 24 hours, while deaths rose 3,449 for a toll of 222,408.

At least 11 states and regions have ordered curbs on movement to stem infections, but Prime Minister Narendra Modi's government, widely criticised for allowing the crisis to spin out of control, is reluctant to announce a national lockdown, concerned about the economic impact.

Adding to pressure on services companies, input costs, which have risen for 10 consecutive months on higher food and fuel prices, rose at the fastest rate since December 2011. The strongest increase was seen in consumer services.

Yet the Reserve Bank of India was not expected to raise interest rates this fiscal year, instead supporting growth as the country grapples with the coronavirus.

"Services firms noted the steepest rise in overall expenses in over nine years as global shortages of inputs and higher transportation costs continued to exert upward pressure on outlays," De Lima added.

"The gap between rates of inflation for input prices and charges was one of the widest since the global financial crisis."

Selling prices rose mildly as very few firms passed on the cost burden to clients, with 98% of respondents leaving fees unchanged to secure orders and remain competitive.

Firms lowered headcount for the fifth consecutive month, albeit slightly. Just 3% of the companies shed jobs.

The new export business sub-index was further below the breakeven mark than in March as travel restrictions added to the fall in international demand which has been on a downtrend since the onset of the pandemic in March 2020.

Manufacturing activity growth picked up slightly in April, but the fall in the services reading pulled the composite PMI down to 55.4 from 56.0 in March.