Business activity rises for 2nd straight month; employment up for first time in 9 months

The recovery in the Indian services sector was sustained in November as new work orders supported business activity growth and the first rise in employment in nine months, a monthly survey said on Thursday. The seasonally adjusted India Services Business Activity Index posted above the critical 50 mark that separates growth from contraction for the second month in a row during November.

Despite falling from 54.1 in October to 53.7 in November, the latest reading was still indicative of a solid pace of expansion amid better demand conditions and a relaxation of COVID-19 restrictions. "The Indian service sector continued to recover from the coronavirus-induced contractions recorded from March through to September. Companies enjoyed a further rise in new work intakes and responded to this by lifting business activity and employment," said Pollyanna De Lima, Economics Associate Director at IHS Markit.

Services firms hired additional workers in November, ending an eight-month sequence of job shedding. That said, the rate of employment growth was marginal overall as some companies reported having sufficient staff to cope with current workloads. On the prices front, the rates of inflation for input costs and output charges accelerated.

"Low interest rates aimed at mitigating the negative impacts of COVID-19 on the economy and the latest rise in services employment are supportive factors for domestic demand. However, a pick-up in inflationary pressures could threaten the recovery," Lima noted. Meanwhile, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) began its three-day deliberation on Wednesday amid expectations of status quo on the benchmark lending rates in view of high retail inflation.

The RBI will announce its monetary policy review on December 4. Looking ahead, services firms were confident of a rise in business activity in the coming 12 months. The overall degree of optimism improved to a nine-month high. Positive sentiment was boosted by hopes that a vaccine for COVID-19 will be rolled out.

Meanwhile, Indian private sector activity rose for the third straight month in November, but the pace of growth softened from October's near nine-year high. The Composite PMI Output Index, which measures combined services and manufacturing output, was down from 58 in October to 56.3 in November. Both goods producers and services firms registered slower increases in sales.

"Output and sales across the private sector have held up well, but there were some signs of growth losing momentum among goods producers and service providers. As has been the case in most nations worldwide, the manufacturing sector outperformed its services counterpart as the latter was hit harder by the COVID-19 pandemic," Lima said. India's economy recovered faster than expected in the September quarter as a pick-up in manufacturing helped the gross domestic product (GDP) clock a lower contraction of 7.5 per cent and held out hopes for further improvement on consumer demand bouncing back.

The GDP had contracted by a record 23.9 per cent in the first quarter of 2020-21 fiscal (April 2020 to March 2021) as the coronavirus lockdown pummelled economic activity.