Home / Economy / Services sector activity moderates in January on softer sales, production

NEW DELHI : Activity in India’s services sector moderated slightly in January compared to the previous month largely due to a softening of sales and output, a private survey showed on Friday. The influx of new business continued at the beginning of the calendar year, largely led by domestic market demand as international orders decreased marginally amid demand slowdown in advanced economies.

eco It was aided by input cost inflation easing to a two-year low. A reading over 50 denotes expansion. “As seen earlier in the week from the manufacturing PMI results, growth across the service sector lost some momentum at the start of the year.

Yet, the survey showed us that service providers received high amounts of new business which helped keep the overall rate of growth historically prominent. Demand resilience, in turn, meant that output also continued to expand at a generally strong pace," said Pollyanna De Lima, economics associate director at S&P Global Market Intelligence.

The PMI survey comes close on the heels of finance minister Nirmala Sitharaman’s attempt to propel India’s economic growth by scaling up spending on capital formation amid adverse global economic outlook and demand slowdown in advanced economies.

Services firms posted rise in backlogs but employment levels remained largely unchanged. It could be attributed to subdued confidence about outlook. The overall level of positive sentiment fell to a six-month low as the vast majority of panellists (80%) forecast status quo in activity from the current levels, the report noted.

“The latest results highlighted some caution among service providers, partly evidenced from the vast majority of firms predicting no change in output from present levels. This somewhat subdued level of confidence towards the outlook appeared to have stymied job creation in January," said De Lima.

However, favourable economic conditions, accommodative demand and marketing efforts supported sales.

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The Economic Survey for 2022-23 issued on Tuesday pointed out that the services sector has bright growth prospects on the back of improved performance of sectors like information technology, tourism, real estate and e-commerce, but external factors and bleak economic outlook in advanced economies could impact growth prospects.

“After re-accelerating in December, input cost inflation in the service economy retreated to a two-year low in January, aiding a slower and only moderate upturn in selling prices," said De Lima.

India’s retail inflation fell to a one-year low of 5.72% in December , below the central bank’s upper tolerance limit of 6% for the second time this year. The Reserve Bank of India-led monetary policy committee on 7 December hiked the repo rate by 35 basis points (bps) to 6.25%, the fifth increase this fiscal year, taking the policy rate to the highest level since August 2018. While the rate of inflation softened to a two-year low, services firms noted a further increase in expenses in January, which they attributed to higher costs for a wide range of materials, food and staff, according to the report.

Services sector orders were largely led by domestic demand as international orders fell compared to December, when they rose to the strongest in almost three and a half years.

The S&P Global India Composite PMI Output Index, which includes both manufacturing and services, fell from an 11-year high in December at 59.4 to 57.5 in January.

Manufacturing production increased at a stronger rate than services activity, but growth moderated in both cases.

India’s national accounts data for the fiscal second quarter released in November showed that the economy grew by 6.3%, supported by a rebound in the services sector even as the manufacturing segment contracted. The services sector, comprising three segments — trade, hotel, transports; financial, real estate; and public administration and other services – reported a 9.3% rise during the quarter on the back of a revival in contact-intensive services in line with the easing of the pandemic.

Dilasha Seth
" Dilasha Seth is a journalist reporting on macroeconomic policy for the last 11 years. She writes extensively on issues including international trade, macroeconomic data, fiscal policy, and taxation. At Mint, she reports on trade deals that India is signing besides key policy decisions of the Ministry of Finance. She closely tracked and covered the transition to the goods and services tax (GST) regime in 2017 and also writes on direct tax-related issues. In the past, she has worked with Business Standard and The Economic Times. She is based in Bangalore."
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