PMI: Service sector moves towards stabilisation in September

The largest contributor in GDP (Gross Domestic Products), services, gained slightly in September as the Purchasing Managers’ Index (PMI) rose for the fifth consecutive month. However, it is still below the critical benchmark of 50, with the current reading at 49.8.

It is a mixed bag on the service sector front. While the bad news is that there could be a further reduction in new work and employment, the good news is that backed by a good performance on the manufacturing front, private sector activity in the country expanded in September.

With a nearly 54 per cent share in the Gross Domestic Products (GDP), the service sector accounts for the maximum among the three sectors i.e. services, industry and agriculture. The India Services PMI is compiled by economic research agency IHS Markit from responses to questionnaires sent to a panel of around 400 service sector companies. A diffusion index is calculated for each survey variable. The indices vary between 0 and 100, with a reading above 50 indicating an overall increase compared to the previous month, and a number below 50 indicating an overall decrease.

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Commenting on the latest survey results, Pollyanna De Lima, Economics Associate Director at IHS Markit, said the relaxation of lockdown rules in India helped the service sector move towards a recovery in September. Participants of the PMI survey signalled broadly stable business activity and a much softer decline in new work intakes. Payroll numbers decreased further, but several firms reported that attempts to take on extra workers were hampered by a lack of available labour.

“Backlog data suggests that hiring efforts will continue in the near term. However, we could see a better employment trend in the coming months, provided that people are willing to leave their hometowns in search of vacancies,” she said.

The agency said the latest reading was indicative of broadly stable output across the sector. Companies that observed growth commented on the reopening of business units amid the loosening of lockdown rules. Firms that reported a contraction mentioned the damaging impact of the pandemic on demand.

“Indeed, overall new business declined. The fall was the seventh in consecutive months, though moderate and the weakest since March. New orders from abroad likewise contracted at the slowest pace in six months, but here the reduction was sharp. According to panel members, international demand was restricted by the global Covid-19 pandemic,” the agency said.

However, with a good performance by manufacturing, aggregate output rose. The agency attributed the upturn to the sharpest increase in manufacturing production in close to 13 years and a stabilisation of services activity. Rising from 46.0 in August to 54.6 in September, the Composite PMI Output Index signalled a marked rate of activity growth across the private sector economy.

"Taking into account the performance of the manufacturing industry, a better picture of the Indian economy is painted. Private sector output expanded for the first time in six months during September, and at an above trend rate, while the increase in sales was the first since February. The news will be welcomed by policy-makers, particularly following the pandemic related 23.9 per cent contraction in GDP in the opening quarter of fiscal year 2020-21," De Lima said.

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