New orders help services sector to hire at fastest pace in 7 years : PMI

HHigher work orders helped India’s services sector return to the growth charts in March and raise hiring at the fastest pace in a little more than seven years, showed the widely tracked Nikkei India Services Purchasing Managers’ Index (PMI).

PMI for the sector was 50.3, recovering from the 47.8 of February. The 50-point mark separates expansion from contraction, indicating the sector’s health remains in tumult. In the 12 months to March, the sector contracted four times in the PMI measure.

Service activity had contracted in February for the first time in three months as rising price pressure led to a decline in new business orders. In March, enhanced marketing and discounts in some cases allowed services companies to win new clients, according to the report by IHS Markit, compiler of the PMI survey.

Confidence among firms strengthened to the highest recorded since implementation of the goods and services tax last July, with forecasts of an improvement in demand being cited as the key factor behind the optimism. In keeping with the sentiment, services providers raised their hiring.

“In response to efforts undertaken by the government to formalise the economy, more people are gravitating towards employment as signalled by the latest PMI data. Indeed, job creation accelerated to the quickest since June 2011,” said Aashna Dodhia, economist at IHS Markit and author of the report. 

India’s services sector continued to face higher cost burden in March. Despite softening from February’s three-month high, input cost inflation was marked. Fuel, food items, and gold were reported by survey respondents as increasing in price over the survey period.

Meanwhile, backlog of work at these companies rose in March and the rate of accumulation was the fastest in five months. Businesses say the increase was only as a result of new work, not so much due to lack of capacity. 

On the other hand, growth in the manufacturing sector slowed to a five-month low in March, the smallest improvement in operating conditions since October 2017. With capacity idling, companies lowered their payroll numbers for the first time in eight months, albeit moderately, and the PMI here fell to 51 in March, from 52.1 in February. 

The Nikkei India Composite PMI Output Index, which maps both the manufacturing and services sectors, managed to rise, in keeping with a marginal increase in overall output. It rose from 49.7 in February to 50.8 in March.