The services sector continued to expand in September, though at a slower rate, as the purchasing managers’ index (PMI) fell to 55.2 from 56.7 in August. However, the good news is there was new recruitment after a nine-month gap.

This is in contrast to manufacturing PMI, which rose to 53.7 in September from 52.3 in August.

Both the PMI data are released every month by IHS Markit, ahead of comparable official data. Services has a share of 57 per cent in gross value added (GVA), while it is over 14 per cent for manufacturing. Both PMIs are prepared from responses to questionnaires sent to a panel of around 400 companies each in the manufacturing and services sectors. 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 below 50 an overall decrease.

Rise in business activity

Commenting on the latest survey results, Pollyanna De Lima, Economics Associate Director at IHS Markit, said Indian companies continued to benefit from a recovery in demand as the pandemic receded further and restrictions were lifted. The improved market environment meant firms managed to secure new work and increase business activity during September.

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“Signs from forward-looking indicators were mixed. Employment returned to growth territory, posting the first rise since the onset of the pandemic, suggesting that the rebound in demand is expected to be sustained and that further increases in business activity are in the pipeline. At the same time, there was another decline in outstanding business. This implies that companies still have spare capacity to accommodate for rising sales and hint that the recovery in employment is by no means guaranteed to continued,” she said.

Explaining the job trend further, the report said the increase in employment ended a nine-month sequence of job shedding, but was marginal overall, as some panellists indicated having a sufficient workforce. The September data pointed to spare capacity among services companies, with outstanding business volumes declining for the second month in a row.

Inflation worries

The survey covers sectors such as consumer (excluding retail), transport, information, communication, finance, insurance, real estate and business services. The panel is stratified by sector and company workforce size, based on contributions to GDP.

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Based on the survey, the report said that the overall rate of inflation was solid, but softened to an eight-month low. “Some companies suggested that additional cost burdens were shared with their clients via increases to selling prices. However, others refrained from lifting their fees in attempts to secure new work,” it said.

About the future, the report said that despite the sustained recovery, business confidence weakened in September. “While forecasts of better demand in the year ahead supported business confidence regarding output, growth looks set to be constrained by rising inflation expectations. We saw a substantial decline in positive sentiment among service providers due to this factor, despite input cost inflation retreating in September,” De Lima said.

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