Business activity in India’s manufacturing and services sectors continues to improve with a gradual reopening of the economy and an increasing pace of vaccination. The latest Purchasing Managers’ Index (PMI) survey published by IHS Markit showed that the seasonally adjusted India Services Business Activity Index stood at 58.1 in November, a slight decline from 58.4 in October. A reading above 50 indicates expansion and below the threshold indicates contraction.
Manufacturing PMI for November also pointed to a strong improvement. As a result of the combined improvement in these two sectors, the overall PMI output index rose to 59.2 in November, from 58.7 in October. This is the strongest uptrend in the composite PMI since January 2012, the survey report said.
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“Total new business grew for the fourth consecutive month and at the fastest pace in nearly 10 years. The uptick in growth came from the manufacturing industry, as sales among service providers grew at a pace that had changed little since October,” the PMI survey report said.
Private companies operating in both the sectors are continuing to tackle input cost inflation by raising prices gradually. As firms are yet to bear the full burden of cost pressures, inflation remains a concern and is putting pressure on their business confidence.
Another pain point is that employment trends remain muted, despite the headline indices showing a revival. According to the report, private sector employment grew marginally in November on a combined basis.
Unfortunately, the outlook on this front is bleak. Economists at DBS Bank warned that the effects of the pandemic on labor markets and incomes are likely to be felt longer than the revival in other cyclical economic activity.
“The improvement in hiring has also been one-sided, as some cyclical sectors outperform the rest, such as the ITES/computer software sector. Elsewhere, with more than two-thirds of the workforce self-employed and casual labor, the reliance on regular employment (as most are without social/security benefits) is high,” the Singapore-based bank said in a report dated December 2. The U.S. states that although the unemployment rate has fallen to pre-Covid levels, the total number of people employed is below January 2020 levels, with urban areas doing better than rural.
This is not unique to India, but peers and emerging and developed countries are yet to see a meaningful improvement in employment figures.
In such a situation, RBI’s Consumer Confidence Survey to be released on December 8 can be expected to shed more light on the situation.
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