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Activity in India’s services sector continued to recover in September, though it remained in the contraction zone. Latest data by IHS Markit showed that purchasing managers’ index (PMI) for services rose from 41.8 in August to 49.8 in September. A reading above 50 indicates expansion and below this threshold signals contraction.

A bright spot was improved confidence among service providers. Participants were upbeat about the year-ahead outlook for business activity for the first time since April. Hopes that a vaccine for covid-19 will be rolled out is fuelling this optimism, said the report.

There are many vaccine trials in the works worldwide. However, even after an effective vaccine gets approved, a meaningful recovery for this sector in India and globally, isn’t happening soon.

Confidence boost
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Confidence boost

“Our channel checks show that post-covid, there is a change in behaviour and spending pattern of urban consumers. Most households have allocated increased expenses towards health and hygiene. Some discretionary spending on repainting, purchase of electronic items is happening. But spending on holiday/leisure activities is hardly on the agenda of consumers because the outlook on jobs and flow of income remains discouraging," said an analyst requesting anonymity.

The travel and tourism industry forms a significant part of the services sector. It is a key contributor to economic growth in India and globally. Economists believe this industry would face a near-to-medium term headwinds as people chose to travel only when necessary. The jury is out on whether the work-from-home model is here to stay. If companies stick to it, for safety and cost-saving purposes, corporate travel could decline, analysts caution. Most firms indicated in Q1 that they are saving costs by reducing discretionary expenses such as corporate travel, advertising and promotion.

The second challenge that could hinder the recovery, especially of the global tourism industry, is that of vaccine nationalism. Concerns are that once a vaccine is approved, richer countries would serve their own populations first by signing agreements with pharmaceutical majors. This would mean supply shortage for poorer countries. Travel would be hit accordingly. In short, for discretionary services the road to recovery is long.

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