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India’s Services PMI Contracts For Third Straight Month

The India Services Business Activity Index stood at 45.4 in July 2021 compared with 41.2 in June.

<div class="paragraphs"><p>A Tata Consultancy Services Ltd. (TCS) office building in the Electronic City area of Bengaluru, India, on Friday, March 5, 2021.  Photographer: Dhiraj Singh/Bloomberg</p></div>
A Tata Consultancy Services Ltd. (TCS) office building in the Electronic City area of Bengaluru, India, on Friday, March 5, 2021. Photographer: Dhiraj Singh/Bloomberg

While a gauge of India’s services sector indicated some improvement as local lockdowns to contain the deadlier second Covid-19 wave eased, it remained in the contraction zone for the third straight month.

The India Services Business Activity Index, compiled by IHS Markit, stood at 45.4 in July 2021 compared with 41.2 in June, according to a media statement. A reading below 50 indicates a contraction in business activity.

Business activity, new orders and employment declined but the pace was slower than June.

The Composite PMI Output Index, however, rose to 49.2 in July from 43.1 in June. The downturn was restricted by a rebound in manufacturing.

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For services, new work intake fell for the third month in a row, albeit at a softer pace than in June. Firms observed a further deterioration in international demand for services, with consumer services being the worst-affected.

In line with sustained declines in new work, there was a further reduction in service sector jobs during July. Employment contracted for the eighth consecutive month, albeit at a moderate pace.

Input costs increased further in July. Survey participants reported higher prices paid for a wide range of items such as fuel, medical equipment and raw materials. The overall rate of inflation quickened from June and outpaced its long-run average.

Output charges rose at the fastest pace in five months, but was below its long-run trend. Companies that hiked fees cited partial pass-through of greater cost burdens to clients.

Besides, service providers signaled a renewed increase in outstanding business volumes after declining for the first time in 13 months in June. But the rate of backlog accumulation was slow.

Firms were pessimistic about the 12-month outlook for output for the first time in a year. That stemmed from concerns over the pandemic, margin and inflation.