India's services growth slows in December as inflation pressures persist

India's services sector expanded for a fifth straight month in December, albeit at a slower pace than in the previous month, as demand rose but concerns over another wave of Covid-19 and inflationary pressures cast a shadow over the outlook, a survey showed.

Wednesday's Services Purchasing Managers' Index , compiled by IHS Markit, eased to 55.5 in December from 58.1 in November, the lowest since September but still well above the 50-mark that separates growth from 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.

The new business sub-index was above 50 for a fifth month, supported by the real estate and business services sectors, although the growth rate softened to a three-month low. Export business continued to decline as travel restrictions related to the pandemic weighed on international sales.

Business confidence was at a four-month high in December on robust demand, yet rising coronavirus infections kept it in check. India reported its highest number of COVID-19 cases since September this week, approaching 40,000 cases in a day, pushing the total tally of infections to around 35 million.

Higher prices for transportation, vegetables and medical equipment fueled input costs but firms passed less of that burden to customers.

The Reserve Bank of India is not expected to raise interest rates until next quarter, according to a Reuters poll taken last month, as inflation has been within its 2%-6% target range since July.

Firms trimmed their workforce in December, in part due to a lack of skilled labour, breaking a three-month hiring trend. "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," De Lima said.

The overall composite index eased to 56.4 in December from 59.2 in November, the lowest since September but supported by a robust manufacturing industry.