Home >News >India >Services sector expands at fastest pace in a year in Feb

New Delhi:India’s service providers expanded their activity at the fastest pace in a year in February owing to a quicker increase in new orders with the rollout of coronavirus vaccines leading to an improvement in business confidence, a private survey said.

Data released by the analytics firm IHS Markit on Wednesday showed Purchasing Managers’ Index (PMI) for the services sector shot up to 55.3 in February from 52.8 a month ago. The 50-mark separates expansion from contraction.

In comparison, PMI for the manufacturing sector had fallen marginally to 57.5 in February from 57.7 a month ago, data released on Monday showed.

Transport and storage was the best-performing segment of the service sector out of the five categories monitored by the survey, recording the strongest increases in new business and output during February. Information and communication was the only sub-sector to post a contraction in sales and business activity in the latest month. Companies in this category also bucked the general trend of positive growth projections and signalled a neutral outlook for output, the survey showed.

Services sector expands at fastest pace in a year in Feb
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Services sector expands at fastest pace in a year in Feb

Worryingly, however, employment declined for the third month in a row, and companies noted the sharpest rise in overall expenses for eight years. New export orders declined for the 12th month running, albeit at the weakest rate since last March.

“Despite the ongoing growth of total new business, service sector employment fell further during February. A number of companies suggested that the covid-19 pandemic restricted labour supply. The pace of job shedding accelerated from January but was moderate overall," the analytics firm said.

Amid reports of higher freight, fuel and retail prices, overall input costs increased in February. Furthermore, the rate of inflation accelerated to the strongest since February 2013. “However, competitive pressures prevented companies from lifting their own fees. February highlighted a broad stabilization of selling prices, following marginal declines in each of the prior two months," it added.

Pollyanna De Lima, economics associate director at IHS Markit, said economic activity is generally expected to recover in the final quarter of the fiscal year 2020-21 after coming out of technical recession in Q3, and the latest improvement in the PMI indicators points to a strong expansion in the fourth quarter should growth momentum be sustained in March. “There were further jobs losses across both the manufacturing and service sectors, which also could restrict domestic consumption in the coming months. However, with capacity pressures mounting, business sentiment strengthening and the vaccination programme widening, it seems that the best days are ahead of us regarding employment growth," she added.

The Indian economy recovered in the December quarter to expand at 0.4% after two successive quarters of historic contraction induced by the coronavirus pandemic, signalling that Asia’s third-largest economy may be on a path of slow but sustained recovery. For FY21, however, the government’s statistics office now estimates a deeper contraction of 8% than the earlier estimate of 7.7% contraction.

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