February sees service sector expansion at a never seen before rate within a year while employment falls

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February witnessed one of the most rapid expansions of the service sector of the country within the year while employment levels continue to fall. Even with the fall in employment rates companies have reported an increase in overall expenses. Owing to the improved demand and favorable market conditions country’s seasonally adjusted India Service Business Activity Index showed a rise from 52.8 in January to 55.3 in February. It has been the fifth month in a row where the index has crossed the critical 50 mark. Any point above 50 separates growth from contraction. The roll-out of various Covid-19 vaccines in February has contributed to this improved business confidence towards growth prospects. Although the new work intakes also showed an expansion or the fifth consecutive month, the travel restrictions that are still in place due to the pandemic have significantly curtailed the international demand for most of the services. It has been noted that export orders have been declined for the twelfth month in a row and have shown the weakest rate since March 2020.

After getting out of technical recession in Q3, economic activity is expected to recover in the final quarter. The Indian economy showed a 0.4 percent growth in the October-December quarter after a two-quarter contraction. As per the survey by HIS Markit India Services PMI, the service sector still showed a fall in employment rates. These job losses would restrict domestic consumptions and might downplay the current high. But these current improvements and associated positive business sentiments along with the pressure on the business to meet their full capacity would bring brighter days for employment growth. There has been a rise in the prices of freight fuel and overall input costs. The rate of inflation has also peaked once again after its February 2013 high. Once these costs are translated to price hikes demand strength of consumers might come down. But overall businesses have a positive outlook towards growth opportunities.

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