India Services PMI falls to 3-month low in December 2021

6 Jan 2022 , 03:47 PM

Despite falling from 58.1 in November to a three-month low of 55.5 in December, the seasonally adjusted India Services Business Activity Index was still consistent with a marked rate of economic expansion. The upturn was often associated with improving market conditions and accommodative demand.

Indian services companies continued to report growth of sales and business activity in December. Rates of expansion moderated but were nevertheless marked by historical standards. However, despite robust gains in new work in recent months, companies were able to stay on top of workloads and as a consequence reduced headcounts at the end of 2021.

Monitored companies reported a further increase in new business intakes during December. The rise was the fifth in successive months and marked, but softened to a three-month low. Indian services companies continued to clear their outstanding business at the end of 2021, with the latest fall the fifth in consecutive months. The rate of depletion was moderate, however, and the weakest over this period.

Service providers reported a further increase in expenses during December. Anecdotal evidence highlighted higher prices for chemicals, food, fuel, medical equipment, office products, tools and transportation. Although sharp and above its long-run average, the overall rate of inflation softened to a three-month low.

Amid reports of rising expenses, prices charged for the provision of services in India increased at the end of 2021. That said, the rate of charge inflation was moderate, below trend and the weakest since September.

Private sector firms in India recorded a further robust increase in output during December, despite the pace of expansion easing to a three-month low. The Composite PMI Output Index slipped from 59.2 in November to 56.4, but remained above its long-run average of 53.9. Both manufacturing production and services activity rose at slower, albeit historically strong, rates.

Commenting on the latest survey results, Pollyanna De Lima, Economics Associate Director at IHS Markit, said: “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. “Moreover, owing to the buoyant performances seen in October and November, the average growth rate for output over the third quarter of fiscal year 2021/22 was the strongest since the three months to March 2011. “Services firms were generally confident that output would increase in 2022, but fears of new COVID-19 waves and price pressures somewhat hindered optimism.

“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. “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.”