Services sector still in expansionary mode

New Delhi: India's services sector activity continued to expand in September, supported by favourable underlying demand amid the easing of Covid-19 restrictions, but lost some momentum from August's 18-month high level, a monthly survey by IHS Markit India Services PMI showed on Tuesday.

The seasonally adjusted India Services Business Activity Index fell from 56.7 in August to 55.2 in September, but remained well above its long-run average. "Despite easing from August, the rate of expansion was marked and the second-fastest since February 2020," the survey said.

Buoyed by signs of improvements in underlying demand, Indian service providers took on additional staff during September. The increase in employment ended a nine month sequence of job shedding, but was marginal overall as some panellists indicated having sufficient workforces to deal with their workloads. For the second 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. "Indian companies continued to benefit from a recovery in demand as the pandemic receded further and restrictions were lifted. The improved market environment meant that firms managed to secure new work and increase business activity during September," said Pollyanna De Lima, Economics Associate Director at IHS Markit. However, despite the sustained recovery of the sector, 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," Lima said.