For the sixth consecutive month, the services sector saw an expansion in production.
India’s services sector activity further decelerated in January, as new business grew at a much slower pace amid the escalation of the pandemic, restrictions and inflationary pressures, a monthly survey on February 3 said.
The seasonally adjusted India Services Business Activity Index fell to 51.5 in January, down from 55.5 in December, pointing to the slowest rate of expansion in the current six-month sequence of growth.
For the sixth consecutive month, the services sector saw an expansion in production. In Purchasing Managers Index (PMI) parlance, a print above 50 indicates expansion, while a score below 50 indicates contraction.
According to survey participants, the demand was restricted by the rapid spread of the Omicron version and the resumption of curfew in some parts of the country.
“The escalation of the pandemic and the resumption of curfew had a detrimental effect on the development in the services sector. Both new business and production grew at modest rates, the weakest in six months, said Poliana de Lima, associate director of economics at IHS Markit.
Companies became increasingly concerned that the intensification of the pandemic, the resumption of restrictions and inflationary pressures would hurt growth. Trading sentiment remained positive but fell to a six-month low.
“There are concerns about how long the current wave of COVID-19 will undermine business confidence and lead to job losses. Firms were also concerned about price pressures,” Ms. Lima said.
Services sector jobs declined for the second month during January, due to reduced production requirements and uncertainty about the future among some businesses.
Meanwhile, the overall PMI output index – which measures combined services and manufacturing output – fell from 56.4 in December to 53.0 in January, indicating the slowest rate of expansion in the current six-month period of growth. Service activity and manufacturing output grew at weaker rates.
“The January data pointed to a second consecutive monthly decline in private sector employment. Despite being modest, the job loss rate has accelerated since December,” the survey said.
On the price front, January data pointed to a strong uptick in spending among service providers, with the overall rate of inflation climbing to the highest level since December 2011. Survey members said there were higher food, fuel, material, staff and transportation costs.
“The latest PMI results brought worrying news as input prices increased at the fastest rate in a decade. Fees rose sharply as some firms continued to transfer additional cost burdens to consumers, but inflation was moderate here as most monitored firms left their fees unchanged from December,” Ms. Lima said.
Meanwhile, the Monetary Policy Committee of the Reserve Bank of India (RBI) is scheduled to announce its policy on February 9.
Union Finance Minister Nirmala Sitharaman during her budget speech on February 1announced that the government would borrow around Rs 11.6 lakh crore from the market in 2022-23 to meet its expenditure requirement.
Ms Sitharaman said the country’s fiscal deficit is estimated to be 6.9 per cent in this fiscal, from 6.8 per cent earlier.
India’s economy is projected to grow at 9.2% in the current fiscal before slowing to 8-8.5% in 2022-23 (April 2022 to March 2023). It had contracted 6.6% in the financial year ended March 31, 2021.
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