India's services sector activity expands in September; a marginal uptick in hiring

The PMI which had hit an 18-month high in August at 56.7, moderated to 55.2 in September, but was well above its long-run average.

India’s services sector recorded the second-fastest pace of expansion since February 2020 and a marginal uptick in hiring in September, after nine months of job shedding, as per the Purchasing Managers’ Index (PMI) compiled by IHS Markit. 

The PMI which had hit an 18-month high in August at 56.7, moderated to 55.2 in September, but was well above its long-run average. A score of 50 on the index indicates no change in activity.  

While the loosening of COVID-19 restrictions amid a receding pandemic supported demand with a boost in consumer footfalls for services, businesses, business confidence weakened in September as optimism was curbed by worries regarding inflationary pressures. Higher fuel, material, retail and transportation prices pushed up the average cost burdens faced by Indian service providers further in September.  

Forecasts of better demand in the year ahead supported business confidence regarding output, but growth looks set to be constrained by rising inflation expectations, said Pollyanna De Lima, economics associate director at IHS Markit. “We saw a substantial decline in positive sentiment among service providers due to this factor, despite input cost inflation retreating in September,” she noted.  

Travel restrictions continued to weigh on international demand for Indian services as new export business contracted for the nineteenth month in a row, and at a sharp rate that was the quickest since May 2021, IHS Markit said. 

The composite PMI for September, which includes both manufacturing and services, was virtually unchanged at 55.3 in September from 55.4 in August. Employment at the composite level stabilised after contracting in each of the prior 18 months. A marginal reduction in jobs at goods producers’ broadly offset growth at service providers. 

Ms. De Lima said the signs from forward-looking indicators were mixed and there is no guarantee that the recovery in employment would sustain. Although employment returned to growth territory for the first time since the onset of the pandemic, outstanding business volumes declined for the second successive month, implying that companies still have spare capacity, she pointed out.  

As per the Services PMI, based on a survey of 400 firms conducted between September 13 and 28, businesses reporting growth attributed the uptick to accommodative market conditions and favourable underlying demand amid the easing of COVID-19 restrictions.  

“With the pandemic receding, there was a boost to consumer footfall. This, coupled with marketing efforts, reportedly supported another increase in new business inflows. Despite easing from August, the rate of expansion was marked and the second-fastest since February 2020,” the firm said in a note.  

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