New Year cheer: Services sector records growth for fourth consecutive month in Jan

The services sector started on a strong note in 2021 with continued expansion in January as new business and activity expanded for the fourth consecutive month, as per the Iatest IHS Markit India Services PMI survey.

The seasonally adjusted India Services Business Activity Index rose from 52.3 in December to 52.8 in January, pointing to a quicker expansion in output. Still, the headline figure remained below its long-run average of 53.3 and was consistent with a moderate pace of growth. A reading above 50 indicates an overall increase compared to previous month and a number below 50 points to an overall decrease.

The pace of growth was moderate, but accelerated from December 2020.

Also read: India’s Manufacturing PMI improves to 57.7 in January

The launch of the Covid-19 vaccine programme boosted optimism towards the 12-month outlook for output. However, employment declined further, while exports contracted sharply. On the price front, there was a slower rise in input costs and prices charged for the provision of services decreased.

Input costs increased for the seventh consecutive month in January 2021, with monitored companies reporting higher prices for fuel and a wide range of materials. Although weaker than in December, the rate of cost inflation was marked in the context of historical data.

Looking ahead, service providers were confident of a rise in output in the coming 12 months. Positive sentiment was supported by beliefs that the roll-out of Covid-19 vaccines would underpin demand growth and improvements in the wider economy.

India composite pmi

Business activity across the private sector expanded at a marked and accelerated pace at the start of 2021, with growth picking up among manufacturers and service providers. The Composite PMI Output Index edged up to 55.8 in January, from 54.9 in December, thereby remaining above its long-run average of 53.9.

Also read: Manufacturing PMI improves a bit to 56.4 in Dec

Private sector companies noted a fifth-consecutive monthly rise in new business intakes, with the rate of expansion quickening to the strongest since last October. Growth accelerated at goods producers and services firms, with the former leading the upturn.

January data highlighted a broad-based decline in employment across the manufacturing and service categories. Private sector jobs have fallen consistently over the past 11 months.

Pollyanna De Lima, Economics Associate Director at IHS Markit, said: “The Indian service sector enjoyed good levels of activity in January, with new business volumes rising for the fourth successive month and growth rates for both measures picking up from December.”

Employment remains low

“The main area of concern is the extent to which costs are rising across the services economy, with the rate of inflation remaining above trend despite easing from December. There are signs that higher costs are preventing firms from taking on additional staff, with the PMI survey showing a second successive fall in employment.

“But, with business optimism rising to an 11-month high in light of the new Covid-19 immunisation programme, the service sector is set to sustain growth and confidence towards hiring may improve as Covid-19 concerns diminish,” she said.

Lima added, “When we combine the results for the service sector with those for manufacturing, the picture for the Indian economy looks brighter. Across the private sector, output and new orders rose markedly and at rates that surpassed their respective long-run averages.”