Service activity rises for first time since February; joins manufacturing growth with flying colours

India’s service activity expanded for the first time since February in October 2020. Services PMI rose from 49.8 in September to 54.1 in October. The service companies’ performance improved on account of easing of the coronavirus-led restrictions, which helped them secure new work and lift business activity in the month, said a report by IHS Markit. Optimism towards the year-ahead outlook for output also strengthened. The companies have also reported an increase in new work intakes on account of successful marketing efforts and strengthening demand. Data indicated that the domestic market was the key source of new business gains, as new orders from abroad fell further.

The Composite PMI Output Index also rose from 54.6 in September to 58 in October, indicating the strongest increase in private sector output in around nine years. A sharp rise in factory production was accompanied by a return to growth of services activity, the report said.

“It’s encouraging to see the Indian service sector joining its manufacturing counterpart and posting a recovery in economic conditions from the steep deteriorations caused by the COVID-19 pandemic earlier in the year,” said Pollyanna De Lima, Economics Associate Director at IHS Markit. While a revival of the manufacturing industry began in August, only now the service sector started to heal, Pollyanna De Lima added.

Meanwhile, companies in both the manufacturing and service sectors recorded lower employment numbers at the start of the third quarter of the current fiscal year. Consequently, private sector employment fell for the eighth straight month. The fall in employment in the services sector is attributed to workers on leave failing to return and difficulties in hiring staff due to the coronavirus pandemic. The survey participants indicated that workers on leave had not returned and the widespread fear of Covid-19 contamination continued to restrict staff supply. As a result of falling employment and rising orders, backlogs of work increased.