Services sector activity edges up in February
3 min read . Updated: 04 Mar 2022, 12:13 PM IST
Premium- IHS India Services Business Activity Index rose to 51.8 in February from 51.5 in January as both new business and output rose moderately on account of input shortage and inflationary pressures, and local elections.
Bengaluru: Activity in India’s services sector recovered marginally in February after decelerating to a six-month low in the previous month as covid-19 cases declined and restrictions were lifted, a private survey showed on Friday.
The IHS India Services Business Activity Index rose to 51.8 in February from 51.5 in January as both new business and output rose moderately on account of input shortage and inflationary pressures, and local elections.
The 50-point mark separates expansion from contraction. 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.
“Growth in the service sector failed to rebound as meaningfully as many would have hoped given that COVID-19 cases receded considerably from January's new wave and restrictions were lifted," said Pollyanna De Lima, Economics Associate Director at IHS Markit. “New business and services activity expanded only modestly, and at the second-slowest rates since last July. Looking at the anecdotal evidence supplied by survey participants, inflationary pressures, input shortages and the local elections dampened growth," added De Lima.
The increase in new businesses and output was below their respective long run averages. However, there was an uptick in business confidence, but firms continued to shed jobs, according to the survey report.
While business confidence strengthened in February due to expectations that the pandemic would retreat, the overall degree of optimism was historically muted due to concerns related to inflationary pressures and Covid-19.
Input costs increase in key sectors like chemical, energy, food, fuel, labour, metal, plastic, led to higher operating expenses in February. Companies continued to transfer additional cost burden to clients with charges levied by service providers revised upwards in February as well.
Brent crude oil price surged past $118 per barrel oN Thursday on account of escalating Russia-Ukraine conflict.
Nevertheless, the rate of output price inflation softened to a five-month low and was below its long-run average.
“Although easing from January's decade high, the rate of input cost inflation remained sharp in February. That said, fewer firms passed on additional cost burdens to clients amid subdued demand conditions. Output prices rose only slightly, and at the slowest pace in five months," said De Lima.
India’s retail inflation had accelerated to a seven-month high in January led by elevated prices of food and manufactured goods to 6.01%, breaching the Reserve Bank of India’s upper tolerance band for the first time since June.
According to survey participants, marketing efforts, demand resilience and new client wins boosted sales.
International demand for Indian services remained subdued in February, with the rate of reduction the in new business from abroad the fastest since last September.
Employment saw a fall for the third consecutive month and the fastest since July 2021 due to weak growth of new business and a lack of pressure on capacity.
Meanwhile, the IHS Markit India Manufacturing Purchasing Managers' Index released on Wednesday showed that manufacturing activity recovered to 54.9 points in February from 54 points in January as Indian manufacturers raised their buying activity.
Data comes a month after finance minister Nirmala Sitharman presented a growth-oriented budget for 2022-23 with a focus on public spending to support economic growth. The National Statistical Office on Monday estimated the economy to expand by 8.9% in 2021-22. The gross domestic product growth in the third quarter slowed to 5.4%, and is estimated to slow further to 4.8% in the fourth quarter, implicit from NSO estimates.
The Composite PMI Output Index, which accounts for both manufacturing and services index edged up to 53.5 in February from 53 in January as manufacturing firms recorded a notably stronger increase in business activity than their services counterparts.
