The services sector, which dominates the Indian economy, grew at a three-month low pace in December due to competitive pressures and the impact of Covid on demand, showed a widely tracked IHS Markit purchasing managers' index (PMI) survey. Companies shed jobs due to liquidity concerns, labour shortages and subdued demand, the survey revealed.
PMI fell to 52.3 in December from 53.7 in November. The December reading was the lowest since the services sector started growing from October. PMI reading above 50 shows growth and the prine below that means contraction.
Companies indicated that growth was supported by the securing of new work, though curbed by competitive pressures and the Covid-19 pandemic.
Services firms suggested that marketing efforts bore fruit, underpinning a further increase in new business during
December.
Global Covid-19 curbs, particularly travel bans, reportedly restricted international demand for Indian services at the end of 2020. New export business decreased sharply, but at the slowest pace since March.
Job shedding was resumed in December. The decline in payroll numbers was the ninth in ten months, but marginal overall.
"Given the damaging impact of the pandemic on the service economy, some companies are facing financial difficulties, which is preventing staff hiring," said Pollyanna De Lima, economics associate director at IHS Markit.
Lima said it is clear that the early part of 2021 will continue to be challenging. " But we're looking at a sustainable recovery and some return to normality once Covid-19 vaccines become available," Lima added.
Although companies maintained an upbeat view that output will increase in 2021, the overall level of positive sentiment fell from November. Anecdotal evidence suggested that optimism was curbed by uncertainty surrounding the COVID-19 pandemic, rupee depreciation and inflationary pressures.
Sub-sector data highlighted transport & storage, consumer services and finance & insurance as the brightest spots, where sales and output expanded in December. Contractions were noted in information & communication and real estate & business services.
Input costs increased to the greatest extent since February. Survey participants reported higher prices for a number of items, including cleaning products and fuel.
Despite the intensification of cost inflationary pressures, December data showed a renewed reduction in prices charged for the provision of services in India. Those companies that offered discounts mentioned attempts to beat competition and stimulate demand.
Despite manufacturing PMI increasing a tad in December compared to the previous month, the composite PMI output index fell from 56.3 in November to 54.9 in December, a three-month low.
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