India's Services PMI Remains Steady In February

An employee works on a laptop. (Photographer: Anindito Mukherjee/Bloomberg)

A gauge of India's services sector remained steady on greater bookings, better demand and the retreat of the pandemic.

The India Services Business Activity Index, compiled by IHS Markit, stood at 51.8 in February against 51.5 in January, according to a media statement. A reading above 50 indicates expansion in business activity.

The Composite PMI Output Index, too, rose to 53.5 from 53 in January.

The increase, however, was subdued by historical standards, with some companies indicating that growth was dampened by competitive pressures, Covid-19 and higher prices.

Growth in the services sector failed to rebound as meaningfully as many would have hoped given that Covid-19 cases receded considerably from January's new wave and restrictions were lifted.

Pollyanna De Lima, Economics Associate Director, IHS Markit

A rise in new business inflows to service providers was also weaker than average over the survey history. Marketing efforts, demand resilience and new client wins boosted sales. There were, however, signs that growth was hampered by input shortages, the pandemic and local elections.

International demand for Indian services remained subdued in February, as indicated by a further decline in new business from abroad. The rate of reduction was the fastest since last September.

Relatively weak growth of new business and a lack of pressure on capacity led some companies to reduce headcounts in February. The latest fall in employment was the third in successive months and the fastest since July.

The companies indicated higher operating expenses in February, with chemical, energy, food, fuel, labour, metal, plastic and retail costs as the key drivers of inflation. The overall rate of increase was sharp, but eased from January's 10-year high. The firms continued to transfer additional cost burdens to clients. That said, the rate of output price inflation softened to a five-month low and was below its long-run average.

Business confidence strengthened in February, owing to expectations that the pandemic will continue to retreat. That said, the overall degree of optimism was historically muted amid lingering concerns surrounding inflationary pressures and Covid-19.