Services Sector Activities Expand Modestly In February, Says Survey

Services sector activities in India picked up marginally in February on the back of better demand conditions and the retreat of the coronavirus pandemic but the rate of expansion was the second-slowest since last July and subdued by historical standards, according to a monthly survey.

Reflecting a moderate rate of expansion, the seasonally adjusted IHS Markit India Services Business Activity Index rose to 51.8 in February from 51.5 in January.

"The upturn was attributed by panelists to greater bookings, better demand conditions, and the retreat of the pandemic. That said, the latest increase was subdued by historical standards, with some companies indicating that growth was dampened by competitive pressures, Covid-19 and higher prices," the survey released on Friday said.

A Purchasing Managers' Index (PMI) reading of more than 50 indicates expansion while the level below 50 reflects contraction.

"New business and services activity expanded only modestly, and at the second-slowest rates since last July. Looking at the anecdotal evidence supplied by survey participants, inflationary pressures, input shortages and the local elections dampened growth," Pollyanna De Lima, Economics Associate Director at IHS Markit, said.

Following the escalation of the pandemic and an associated slowdown in growth during January, the service sector moved up a gear in February as Covid-19 cases declined and restrictions were lifted, it said.

Even though new business and output rose at quicker rates, those were below their respective long-run averages. "There was also an uptick in business confidence, but firms continued to shed jobs. Meanwhile, input costs increased at a softer rate as did output prices", it noted.

De Lima noted that growth in the service sector failed to rebound as meaningfully as many would have hoped, given that Covid-19 cases receded considerably from January's new wave and restrictions were lifted.

"New business and services activity expanded only modestly, and at the second-slowest rates since last July. Looking at the anecdotal evidence supplied by survey participants, inflationary pressures, input shortages and the local elections dampened growth," De Lima said.

Further, De Lima noted that business optimism among services firms remained muted relative to its trend, despite improving from January, owing to pandemic-related uncertainty and inflationary pressures. 

"Although easing from January's decade high, the rate of input cost inflation remained sharp in February. That said, fewer firms passed on additional cost burdens to clients amid subdued demand conditions. Output prices rose only slightly, and at the slowest pace in five months," De Lima added.

The monthly survey on the country's manufacturing PMI, released on Wednesday, showed that manufacturing sector activities expanded in February as output and new orders grew at accelerated rates, supported by favorable demand conditions.