Services PMI drops to six-month low in January amid Omciron wave

India’s services sector activity fell to its lowest in six months as the third wave of the Covid-19 pandemic, led by the Omicron variant, swept across the country, a monthly survey showed on Thursday.

The seasonally adjusted India Services Business Activity Index, compiled by IHS Markit from responses to questionnaires sent to a panel of around 400 service sector companies, dropped to 51.5 in January compared with 55.5 in December, the survey shows.

A reading above 50 indicates an overall increase in output compared to the previous month.

January data highlighted further increases in new business and output among service providers, but growth was curbed by the escalation of the pandemic, the survey says. “The upturn was reportedly stymied by the intensification of the pandemic, the reintroduction of restrictions and inflationary pressures.”

Service sector jobs declined for the second straight month in January, owing to reduced output requirements among some businesses and future uncertainty, the survey shows.

"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, wrote in the report.

The Composite PMI Output Index too fell to 53 in January from 56.4 in December, signalling the slowest rate of expansion in the current six-month period of growth, the survey shows.

“Business activity growth across the Indian private sector was sustained at the start of the year, but lost considerable momentum… Both services activity and manufacturing production increased at weaker rates,” the report says.

January data pointed to a second successive monthly drop in private sector employment, the survey shows, adding that the rate of job shedding accelerated from December. “A quicker fall among goods producers was matched by a similar trend among service providers.”

"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," says Lima.

After retreating in December, the rate of input cost inflation surged to its highest in over ten years. The overall rate of inflation climbed to its highest since December 2011.

Survey members noted higher food, fuel, material, staff and transportation costs.

“The latest PMI results brought worrying news as input prices increased at the sharpest rate in over a decade. Charges rose at a faster pace as some firms continued to transfer additional cost burdens to consumers, but the rate of inflation here was moderate as the vast majority of monitored companies left their fees unchanged since December,” says Lima.

Rising Covid-19 cases across the globe and travel restrictions curbed international demand for Indian services. New export business fell at a moderate pace that was the slowest in the current sequence of contraction which started in March 2020, the survey notes.