India's Services Sector Growth Slows In December, PMI At 55.5

The services sector expansion came on the back of rise in demand but concerns over another wave of Covid-19 and inflationary pressures cast a shadow over the outlook

New Delhi: After India’s manufacturing sector ended the year on a solid note, services sector also expanded for a fifth straight month in December, albeit at a slower pace than in the previous month, according to survey by IHS Markit.

The expansion came on the back of rise in demand but concerns over another wave of Covid-19 and inflationary pressures cast a shadow over the outlook, a survey revealed, according to Reuters.

The Services Purchasing Managers' Index, compiled by IHS Markit released on Wednesday, eased to 55.5 in December from 58.1 in November. It is the lowest since September but just above the 50-mark that separates growth from contraction.

"2021 was another bumpy year for service providers and growth took a modest step back in December. Still, the latest readings pointed to robust increases in sales and business activity compared to the survey trend," said Pollyanna De Lima, economics associate director at IHS Markit.

What is the state of services sector?

The new business sub-index remained above 50 for a fifth month on the back of improvement in real estate and business services sectors, although the growth rate softened to a three-month low.

Export business remained under pressure due to travel restrictions owing to pandemic that weighed on international sales.

Business confidence was at a four-month high in December on robust demand, yet rising coronavirus infections kept it in check.

India logged in highest number of Covid-19 cases since September this week, approaching 40,000 cases in a day, pushing the total tally of infections to around 35 million.

Higher prices for transportation, vegetables and medical equipment fueled input costs but firms passed less of that burden to customers.

The central bank is not likely to raise interest rates until next quarter, according to a Reuters poll taken last month, as inflation has been within its 2 per cent- 6 per cent target range since July.

Firms trimmed their workforce in December, in part due to a lack of skilled labour, breaking a three-month hiring trend, according to the report. "Uncertainty surrounding the outlook, and a general lack of pressure on capacity, led to a renewed fall in employment during December. That said, the decline was marginal and a recovery is expected this year should demand for services remain favourable," De Lima said.

The overall composite index eased to 56.4 in December from 59.2 in November, the lowest since September but supported by a robust manufacturing.