India's services growth at 6-mth low in Jan, input costs at decade high

India's dominant services sector expanded at its slowest pace in six months in January as restrictions due to a new wave of Covid-19 cases and surging prices weighed on demand, a private survey showed.

The IHS Markit Services Purchasing Managers' Index (INPMIS=ECI) slumped to 51.5 in January from 55.5 in December, far below the 53.0 expected in a Reuters poll of economists but still above the 50-mark separating growth from contraction.

"The escalation of the pandemic and reintroduction of curfews had a detrimental impact on growth across the service sector," noted Pollyanna De Lima, economics associate director at IHS Markit.

"Both new business and output rose at slight rates that were the weakest in six months."

The new business sub-index was at its weakest since August as consumers stayed home amid rising coronavirus cases, curbing domestic demand.

International demand remained gloomy and contracted for a twenty-third month, as it has since the onset of the pandemic. However, the contraction was moderate and the slowest in this sequence.

While the business expectations index remained above 50, it slipped to its lowest reading since August, indicating dwindling positive sentiment.

"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," added De Lima.

Firms cut headcount for a second month in January due to the weaker demand.

Input costs spiraled to a 10-year high on increased food, fuel, material, staff and transportation costs.

The rate of inflation was one of the highest since data collection started in December 2005 and is likely to reinforce views that the Reserve Bank of India will raise interest rates next quarter in a bid to cool price pressures.

The slowdown in both manufacturing and services activity pushed the composite index to a six-month low of 53.0 last month from 56.4 in December.