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India’s services activity remained elevated in November, recording a marginal drop from the previous month, after registering the strongest growth in more than a decade in October.

Data released by 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 the coming months.

While business confidence rose to a three-month high in November, the overall level of positive sentiment was well below its long-run average, IHS Markit said. “Some companies expect demand to continue to trend higher, but several others were worried that elevated inflation could dampen the recovery. Input costs rose at the second-strongest pace in close to 10 years. While a few firms transferred higher input costs to clients, the vast majority kept their fees unchanged from October," it added.

Amid higher fuel, labour, material, retail and transportation costs, average input prices among services companies rose further in November. As a result, the overall inflation rate quickened from October and was the second strongest in almost a decade, behind April, IHS Markit said.

“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 the recovery of the service sector was extended to November. “Companies were somewhat convinced that output levels would continue to increase in the year ahead, but worries regarding inflationary pressures weighed. Not only did services firms see their expenses increase further in November, but also to one of the greatest extents in a decade. Looking at the manufacturing and service sectors combined, the results are even more encouraging and bode well for economic performance," she said.

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