Service activity in India in August is growing at the fastest rate since the start of the pandemic

BENGALURU (Reuters) – India’s dominant service industry resumed growth in August, expanding at its fastest pace since the start of the pandemic, as businesses reopened amid improving rates vaccination, a survey showed Friday, although companies continued to cut jobs.

Despite the impact of the second wave of the COVID-19 pandemic, India’s economic growth reached a record 20.1% in the June quarter, but analysts said vaccine coverage remains crucial to support the recovery.

The IHS Markit Services Purchasing Managers Index rose to 56.7 in August – its highest pace since the pandemic hit the country in March 2020 and well above the 50 level that separates growth from contraction.

It had been below 50 for three months and was 45.4 in July.

“India’s service sector rebounded in August, driven by the reopening of several facilities and improved customer confidence due to increasing immunization coverage,” said Polyanna De Lima, associate director of economics at IHS Markit .

“Service providers see a brighter outlook, with companies saying economic recovery could be sustained if restrictions continue to be lifted and further waves of contamination can be avoided.”

Overall, new orders grew at the fastest pace since January 2013, with optimism reaching its highest level in five months. However, new export orders continued to decline.

But employment remained in contractionary territory for the ninth consecutive month, underlining the weakness of the labor market.

Persistent supply chain disruptions caused by the pandemic have driven input costs up at their fastest pace since April, and companies have been unable to pass some of the rise on to customers. Prices charged increased at the slowest rate in four months.

“Another worrying aspect was the evidence that inflationary pressures continued to mount. Input costs rose at the fastest rate in four months, exceeding its long-term average,” added De Lima.

Although the survey indicated that inflation could stay above the Reserve Bank of India’s medium-term target of 4% for some time, analysts believe that the likelihood of a tightening policy of the central bank in the coming months remains weak as it focuses more on economic growth.

The overall composite index rose to 55.4 last month from 49.2 in July, well above the 50 mark for the first time in four months, as strong growth in services activity offset a rebound lower in the manufacturing sector.

(Reporting by Manjul Paul; Editing by Kim Coghill)

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