Indian service sector activity moderates in December; expansion seen for five straight months

The activity in the Indian service sector in moderated in December as business activity and sales rose at a softer pace, while price pressures and the possibility of new waves of COVID-19 affected business sentiment, a monthly survey said on Wednesday.

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Seasonally adjusted India Services Business Activity Index fell from 58.1 in November to a three-month low of 55.5 in December. The rates of expansion moderated but were nevertheless "marked" by historical standards, the survey said.

For the fifth straight month, the services sector witnessed an expansion in output. In Purchasing Managers' Index (PMI) parlance, a print above 50 means expansion, while a score below 50 denotes contraction.

"2021 was another bumpy year for service providers, and growth took a modest step back in December. Still, the latest readings pointed to robust increases in sales and business activity compared to the survey trend," said Pollyanna De Lima, Economics Associate Director at IHS Markit.

Moreover, owing to the buoyant performances seen in October and November, the average growth rate for output over the third quarter of fiscal 2021-22 was the strongest since the three months to March 2011, Lima noted.

Underlying data suggested that the latest increase in new orders was centred on the domestic market, as new business from abroad fell further. The deterioration in international demand was linked to COVID-19 restrictions, particularly around travelling.

On the employment front, the December data showed renewed job shedding in the service economy, but the rate of contraction was only slight. Firms generally suggested that employment levels were sufficient to cope with current workloads.

"Uncertainty surrounding the outlook, and a general lack of pressure on capacity, led to a renewed fall in employment during December. That said, the decline was marginal, and a recovery is expected this year should demand for services remain favourable," Lima said.

Business confidence strengthened during December to a four-month high, but sentiment remained subdued in the context of historical data.

Some firms foresee further improvements in demand and expect marketing efforts to bear fruit. Others were concerned that the recovery could be dampened by price pressures and potential new waves of COVID-19.

Encouragingly, inflationary pressures in the service economy showed signs of abating at the end of 2021, as both input costs and output charges rose at the slowest rates in three months, Lima said.

The Composite PMI Output Index -- which measures combined services and manufacturing output -- slipped from 59.2 in November to 56.4 in December, but remained above its long-run average of 53.9, as both manufacturing production and services activity rose at slower, albeit historically strong, rates.

December data pointed to a broad-based decline in employment at goods producers and service providers. At the composite level, jobs decreased for the first time in four months.

A total of 2,135 cases of Omicron variant of coronavirus have been detected across 24 states and UTs, out of which, 828 have recovered or migrated, according to the Union health ministry data updated on Wednesday.

(With inputs from PTI)