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Business News/ News / India/  Services PMI rises for fifth month, nears expansion
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Services PMI rises for fifth month, nears expansion

India’s economy contracted at a record 23.9% in the June quarter of FY21, underlining the extent of economic damage inflicted by the pandemic. Most economists now expect Indian economy to contract in double digits in FY21

India's purchasing managers' index (PMI) for services rose to 49.8 in September from 41.8 in August. (Photo: HT)Premium
India's purchasing managers' index (PMI) for services rose to 49.8 in September from 41.8 in August. (Photo: HT)

NEW DELHI: India’s services sector, hit severely due to the over two-month long pandemic-induced lockdown, neared recovery in September, with the purchasing managers' index (PMI) for services rising to 49.8 from 41.8 in August, according to data analytics firm IHS Markit.

This signals a gradual normalisation of business activities after relaxation of lockdown curbs by the government, as per the survey.

Note that a reading above 50 indicates expansion, while a sub-50 print signals contraction.

Data released last week showed India's PMI for manufacturing rose to 56.8 in September, the highest since January 2012, signifying faster normalisation in activities of manufacturing sector than services sector. The data print was at 52 in August.

The survey said even as participants were upbeat about the year-ahead outlook for business activity for the first time since April, there were reductions in new work and employment. “Incoming new business fell moderately, however, and at the slowest rate since March. Input costs meanwhile rose at a quicker pace, while the rate of charge inflation was broadly similar to August," it added.

Pollyanna De Lima, economics associate director at IHS Markit said the relaxation of lockdown rules in India helped the service sector move towards a recovery in September.

"Participants of the PMI survey signalled broadly stable business activity and a much softer decline in new work intakes. Payroll numbers decreased further, but several firms reported that attempts to take on extra workers were hampered by a lack of available labour. Backlogs data suggest that hiring efforts will continue in the near term, however, we could see a better employment trend in coming months provided that people are willing to leave their hometowns in search for vacancies," she said.

Aditi Nayar, principal economist at ICRA Ltd, said the appreciable step up in PMI levels for services and manufacturing for September corroborates the view that things are improving or stabilising in most sectors. “However, the pace at which activity is normalising back to pre-covid levels remains varied," she added.

Lima added that taking into account the performance of the manufacturing industry, a better picture of the Indian economy is painted. “Private sector output expanded for the first time in six months during September, and at an above trend rate, while the increase in sales was the first since February. The news will be welcomed by policymakers, particularly following the pandemic related 23.9% contraction in GDP in the opening quarter of fiscal year 2020/21," she added.

The finance ministry on Sunday said implementation of the Aatmanirbhar Bharat package and unlocking of the economy have ensured that India's economic recovery gained momentum, even as the sustained spread of the virus poses a downside risk to short-term and medium-term growth rate.

In September, India’s merchandise exports entered the positive territory for the first time in seven months, growing at 5.3%. Goods and Services Tax collections also grew 3.9% in September for the first time this fiscal. The recovery in rail freight enabled revenue earnings clocking positive growth for the first time since March in the months of August and early September. Easing of inter-state movement restrictions, quarantine policy and unlocking were accompanied with recovery in Rail Passenger Earnings as well.

The Indian economy contracted a record 23.9% in the June quarter of FY21, underlining the extent of economic damage inflicted by the pandemic. Most economists now expect the economy to contract in double digits in FY21.

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Published: 06 Oct 2020, 11:02 AM IST
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