India's Service Activity Expands At Fastest Pace In 18 Months: PMI Survey

Apart from growth in business activity, there was an improvement in client confidence owing to expansion in vaccine coverage. However, companies saw a decline in new export orders.

Services sector | Representative Image

New Delhi: After a turbulent one-and-half year, the services sector in August expanded at the fastest pace on the back of inflows of new work and improvement in demand conditions, revealed a PMI survey by IHS Markit.

The report revealed that new orders placed with service providers witnessed a significant rise in August, ending a three-month sequence of reductions. Moreover, the pace of expansion was marked and the quickest in over eight-and-a-half years.

What prompted the growth in service activity?

As several establishments reopened and increased consumer footfall boosted sales, the seasonally adjusted India Services Business Activity Index rose from 45.4 in July to 56.7 in August, as per news agency PTI. The services sector saw a major expansion in output in four months in line with the rebound in business confidence. In Purchasing Managers' Index (PMI) parlance, a print above 50 means expansion, while a score below 50 denotes contraction.

Apart from growth in business activity, there was an improvement in client confidence owing to expansion in vaccine coverage. However, companies saw a decline in new export orders. The downturn was often associated with the pandemic and travel restrictions.

Despite the prospect of growth, service providers again lowered headcounts in August. But the rate of job cuts was marginal and the weakest since January. Several firms indicated having sufficient workers to meet demand needs.

The survey indicated that service providers saw a rise on the prices front since higher fuel, retail, and transport prices pushing up their expenses in August. "Input costs increased at the fastest rate in four months, one that outpaced its long-term average," Lima said.

The August data pointed to a renewed increase in private sector activity across India, ending a three-month period of downturn. The Composite PMI Output Index -- which measures combined services and manufacturing output -- was up from 49.2 in July to 55.4 in August. "Services firms outperformed manufacturers for the first time in over three years," the survey said.

Meanwhile, on the macroeconomic front, according to official data the Indian economy grew by a record 20.1 percent in the April-June quarter, helped by a very weak base of last year and a sharp rebound in the manufacturing and services sectors in spite of a devastating second wave of COVID-19.