September 2020: Services Activity Moves Towards Expansion

India’s service sector approached expansion in September as the country eased Covid-19 restrictions.

The Services Business Activity Index compiled by IHS Markit climbed sharply to 49.8 in September from 41.8 in August, rising for the fifth straight month. A reading above 50 indicates expansion, while a lower figure signals contraction.

A sister survey last week showed India’s Manufacturing Purchasing Managers’ Index rising to the highest level in eight-and-half years in September.

As per the survey, while participants were upbeat about the year-ahead outlook for business activity for the first time since April, there were further reductions in new work and employment.

Incoming new business fell moderately, however, and at the slowest rate since March. Input costs rose at a quicker pace, while the rate of charge inflation was broadly similar to August.

Firms that reported a contraction mentioned the damaging impact of the pandemic on demand, while new orders from abroad contracted at the slowest pace in six months.

As per the survey, several firms reported that attempts to take on extra workers were hampered by the lack of available labour.

In line with hopes that a vaccine for Covid-19 will be rolled out, companies were optimistic about the year ahead for business activity. For the first time since April, service providers were confident about growth prospects, according to the survey.

Taken together, the Composite PMI Output Index rose to 54.6 in September from 46 in August, signalling a marked rate of activity growth across the private sector economy.

The trend for employment was similar among goods producers and service providers, with companies in both sectors linking a further contraction in headcounts to labour shortages.

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