Omicron spread: Services PMI falls to six-month low in January

India's services sector activity moderated to a six-month low in January, amid imposition of restrictions across the country due to the Omicron variant as well as inflationary pressures

India’s services sector activity moderated to a six-month low in January, amid imposition of restrictions across the country due to the fast spread of the Omicron variant as well as inflationary pressures.

Data released by the analytics firm IHS Markit showed the purchasing managers’ index (PMI) for services fell to 51.5 in January from 55.5 in December. A reading above 50 indicates expansion in economic activity and a number below that signals contraction.

The data analytics firm said January data pointed to a stronger increase in expenses among service providers, with the overall rate of inflation climbing to its highest since December 2011. Survey members noted higher food, fuel, material, staff and transportation costs.

“The escalation of the pandemic and reintroduction of curfews had a detrimental impact on growth across the service sector. Both new business and output rose at slight rates that were the weakest in six months,” Pollyanna De Lima, Economics Associate Director at IHS Markit said.

“Concerns about how long the current wave of Covid-19 will last dampened business confidence and caused job shedding. Firms were also alarmed about price pressures,” she added.

Service sector jobs declined due to reduced output requirements among some businesses and future uncertainty. Employment rate decreased at a slight pace but was broadly similar to December. Reduced workforces in turn translated into a renewed increase in outstanding business among services firms, after declines were signalled in each of the prior five months, the data analytics firm said. “Finally, rising Covid-19 cases across the globe and travel restrictions curbed international demand for Indian services.

That said, new export business fell at a moderate pace, which was the slowest in the current sequence of contraction which started in March 2020,” it said.

The data comes days after Finance Minister Nirmala Sitharaman presented the Union Budget earlier this week. The Indian economy is projected to grow 9.2 per cent in the current fiscal year. It had contracted by 6.6 per cent in 2020-21. The economic survey, tabled on Monday pegged real gross domestic product (GDP) growth at 8-8.5 per cent in 2022-23.