Services Sector Grows for First Time in FY21

India’s services sector grew in October for the first time since the lockdown as business activity and new work were buoyed by relaxations in Covid-19 restrictions.

The IHS Markit India Services Purchasing Managers’ Index touched 54.1 last month from 49.8 in September, ending eight consecutive months of contraction. A PMI of over 50 indicates growth.

The composite PMI including manufacturing and services rose to 58 in October from 54.6 a month earlier, signalling the strongest increase in private sector output in almost nine years.

Other indicators of economic activity that have shown record growth in October on account of festive demand include goods and services tax collections, e-way bills, railway freight volumes and auto sales.

The pace of job shedding for the services sector remained “solid” in October, matching that of the previous month. Similar trends in manufacturing resulted in eight straight months of declining employment in the private sector.

While a revival of the manufacturing industry began in August, only now has the service sector started to heal, said Pollyanna De Lima, economics associate director at IHS Markit.

The improvements in services PMI pointed to a rate of growth in output that was stronger than its long-run average, according to the release on Wednesday. The data indicated the domestic market was the main source of new business gains as new orders from abroad declined further, it said.

“The deterioration in international demand for Indian services was the slowest since March, but nevertheless sharper than any recorded prior to the Covid-19 outbreak,” according to the release.

In aggregate terms, new orders for the private sector expanded for the second consecutive month, with growth accelerating to its highest pace since January 2013. This trend was led by the manufacturing sector, which posted a decade-high growth in October as its PMI hit 58.9.

Input cost inflation Services companies reported rising expenses for the fourth consecutive month, with the latest increase being the strongest since February. Survey panellists attributed the rise to higher fuel costs, maintenance and material prices.

Apart from a stabilisation of input costs in information and communication firms, rising inflation was recorded in four other sub-sectors that are tracked.

At the composite level, the inflationary trend continued for the eighth straight month, but as with the services sector, output prices rose only marginally in October.