India’s services sector expands as business activity picks up

Companies hired additional workers as demand increased amid the easing of Covid-19 restrictions

India’s services sector continued to expand in November but rate of growth softened compared to October. Getty Images

India’s services sector expanded in November, its second consecutive month of growth, helped by new business activity and the first rise in employment in nine months.

The seasonally adjusted India Services Business Activity Index, compiled by IHS Markit, dipped to 53.7 from 54.1 in October. A reading above the neutral 50 level indicates an economic expansion, while a reading below points to a contraction.

"The Indian service sector continued to recover from the coronavirus-induced contractions recorded from March through to September,” IHS Markit economics associate director Pollyanna De Lima said on Thursday. “Companies enjoyed a further rise in new work intakes and responded to this by lifting business activity and employment. The increase in jobs was marginal at best, but nevertheless the first since the onset of Covid-19.”

Asia's third-largest economy continued to ease movement restrictions to revive business activity, despite a rise in the number of coronavirus cases. As of Thursday, the country had more than 9.5 million infections, about 9 million recoveries and 138,657 deaths, according to Worldometer, which tracks the pandemic.

The country entered into recession after its gross domestic product contracted 7.5 per cent in the third quarter from a year ago, according to official figures from the Statistics Ministry.

New business inflows in the services sector rose for the second straight month, despite growth easing from October on the back of higher sales, according to the IHS Markit survey.

The uptick in new work was largely driven by the domestic market, as new export orders decreased sharply again in November due to subdued global demand and travel restrictions.

Services firms also hired additional workers last month, ending an eight-month sequence of job cuts. Employment growth, however, was marginal overall as some companies reported having sufficient staff to cope with current workloads.

The data also highlighted transport and storage as the best performing category in November, with rates of growth for output and sales surpassing those seen in consumer services and finance and insurance. Information and communication, real estate and business services saw reductions in new orders and activity.

Looking ahead, services firms were confident of a rise in business activity in the coming 12 months, with the overall degree of optimism improving to a nine-month high. Positive sentiment was boosted by hopes that a vaccine for Covid-19 will be rolled out.

The country’s private sector activity rose for the third straight month in November, but the pace of growth softened from October's near nine-year high. The composite PMI Output Index, which includes both manufacturing and services sectors, slipped to 56.3 from 58 in October.

Private sector companies noted a marked, albeit softer, upturn in new business inflows. Both goods producers and services firms registered slower increases in sales, according to IHS Markit.

"Low-interest rates aimed at mitigating the negative impact of Covid-19 on the economy and the latest rise in services employment are supportive factors for domestic demand. However, a pick-up in inflationary pressures could threaten the recovery,” Ms De Lima added.