Services sector in India

Services Growth Drops To Three-Month Low in April, Input Costs Soared

Input costs of services companies rose at the fastest rate since December 2011. The strongest increase was seen in consumer services.

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 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.

Also read: As COVID-19 Second Wave Wreaks Havoc, India Lost Over 7 Million Jobs in April: CMIE

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 ten 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.

(Reuters)

India’s Services Sector Loses More Steam in December, Job Cuts Resume

A spike in COVID-19 cases was reported as a key factor restricting growth of new work intakes among service providers, curbing the rise in output and leading to increased business uncertainty, said the survey.

Bengaluru: Growth in India’s dominant services industry continued to lose momentum in December as a resurgence in coronavirus infections weighed on new business and employment, a private survey showed on Wednesday.

Asia’s third-largest economy has been gradually recovering from a coronavirus-induced recession but is not expected to return to pre-pandemic levels soon, especially within the service industry – the engine of economic growth and jobs in the country.

The Nikkei/IHS Markit Services Purchasing Managers’ Index fell to 52.3 in December from November’s 53.7 but held above the 50-mark separating growth from contraction for a third straight month.

“A spike in COVID-19 cases was reported as a key factor restricting growth of new work intakes among service providers, which in turn curbed the rise in output and led to increased business uncertainty about the outlook,” Pollyanna De Lima, economics associate director at IHS Markit, said in a release.

“It is clear that the early part of 2021 will continue to be challenging and we’re looking at a sustainable recovery and some return to normality once COVID-19 vaccines become available.”

India has the second-highest number of coronavirus infections in the world. On Sunday it approved two coronavirus vaccines for emergency use but it could take years to vaccinate over 1.3 billion people with its rudimentary healthcare system.

Although a sub-index monitoring overall demand ended a rough 2020 in growth territory, it declined to a three-month low as night curfews in some major cities depressed demand.

Also read: World Economies: Who Has the Advantage and Who Is Set to Lose in 2021?

Demand from abroad remained firmly in contraction territory as many countries reimposed lockdown measures to contain a fresh spike in COVID-19 cases.

Weak demand forced firms to lower their prices despite an uptick in input costs, which increased at the quickest pace since February.

Meanwhile, job market conditions darkened, slipping back into contraction, although the pace of job shedding remained minimal.

“Given the damaging impact of the pandemic on the service economy, some companies are facing financial difficulties, which is preventing staff hiring. December saw the ninth round of job shedding in ten months,” De Lima added.

Optimism about the next 12 months faded at the end of the year as firms were concerned about the uncertainty surrounding the pandemic, the rupee’s depreciation and rising inflationary pressures, the survey showed.

Despite a pick-up in factory activity, sluggish demand for services meant the India composite PMI fell to a three-month low of 54.9.

(Reuters)

India’s Services Activity Grows in October for First Time in Eight Months

Overall demand expanded for the first time since February but new export business remained firmly in contraction territory as restrictions imposed across the world due to the COVID-19 pandemic hammered foreign demand.

Bengaluru: Activity in India’s dominant services industry, expanded for the first time in eight months in October as demand surged, but pandemic-hit firms continued to cut jobs, a private survey showed on Wednesday.

The findings, coupled with a similar survey on Monday which found Indian manufacturing growth expanded at its fastest pace in over a decade, suggest a recovery in Asia’s third-largest economy is under way.

The Nikkei/IHS Markit Services Purchasing Managers’ Index (PMI) climbed to 54.1 in October from September’s 49.8. It was the highest reading since February and comfortably above the 50-mark separating growth from contraction.

“It’s encouraging to see the Indian service sector joining its manufacturing counterpart and posting a recovery in economic conditions from the steep deteriorations caused by the COVID-19 pandemic earlier in the year,” Pollyanna De Lima, economics associate director at IHS Markit, said in a release.

“Service providers signalled solid expansions in new work and business activity during October. They were also more upbeat about the outlook, though hopes of output growth in the year ahead were pinned on a COVID-19 vaccine.”

A sub-index tracking overall demand showed it expanded for the first time since February but new export business remained firmly in contraction territory as restrictions imposed across the world due to the COVID-19 pandemic hammered foreign demand.

That led firms to cut jobs for the eight straight month, the longest streak on record.

“Survey participants indicated that workers on leave had not returned and that a widespread fear of COVID-19 contamination continued to restrict staff supply,” De Lima added.

The composite PMI, which includes both manufacturing and services, rose to 58.0 last month, its highest since January 2012, from September’s 54.6.

Although service providers remained optimistic about the year ahead – optimism strengthened to a seven-month high last month – the expectations index remained well below the long-term average.

Input costs increased at the quickest pace since February but firms absorbed much of the jump to win business amid growing concerns that rising coronavirus infections could halt the nascent recovery in the services industry, which contributes over 60% to the country’s gross domestic product.

India has the world’s second-highest coronavirus caseload at well over eight million, behind only the US. New daily cases in India have been falling since September, but experts warn infections could rise again during the festival season.

(Reuters)