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India services PMI hits 7-year high in January

Photo: Mint

India’s services sector activity rose to a seven-year high in January, aided by higher demand and favorable market conditions, which lead to sustained job creation and business optimism, according to IHS Markit India Services Business Activity Index.

Services Purchasing Manager’s Index (PMI) expanded to 55.5 in January from 53.3 in December. A figure above 50 indicates expansion and below 50 indicates contraction.

“The Indian service sector sprung to life at the start of 2020, defying expectations of fragility and building on to the momentum gained at the end of 2019. Strong domestic demand led to expansions in new business and output not seen for seven years,” Pollyanna de Lima, Principal Economist at IHS Markit said.

“With business revenues rising, service providers continued to increase capacity to meet further strong growth in sales. This is good news for jobseekers, particularly when we consider the results from the manufacturing industry which showed the steepest upturn in employment since August 2012,” Lima said.

The Services PMI is compiled by responses to queries sent to around 400 service sector companies in sectors like transport, consumer segment other than retail, information, communication, finance, insurance, real estate and business services. Survey responses are collected in the second half of each month and indicate the direction of change compared to the previous month.

Macro-economic indicators have shown some signs of improvement in this year. The beleaguered manufacturing sector hit a near eight-year high in January. There was improvement other crucial indicators, including goods and services tax (GST) collection and core sector industries.

The report, however, pointed out that the uptick in growth was accompanied by rising inflation, with input costs rising to since February 2013.

“One worrying development, however, was the trend for inflation. The service survey pointed to the sharpest increase in input prices in just under seven years, with companies mostly absorbing the added cost burdens themselves instead of fully passing these on to their customers,” Lima said.

Lima further said that ‘this may translate into quicker increases in selling prices in months to come, which may curb sales. Firms could also choose to restrict hiring in order to protect profit margins’.

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