Activities in services, the biggest sector of India's economy, accelerated to a ten-and-a-half-year high in October, even as companies increased the prices of their final products due to expensive raw materials, showed IHS Markit purchasing managers' index (PMI) survey. Unlike their manufacturing counterparts, service companies hired more hands leading to job generation reaching the highest level after pre-Covid period of February 2020.

       The index rose 58.4 in October from 55.2 in September, which clearly signalled that the third quarter of the current financial year may witness high economic growth.

       PMI numbers, both for manufacturing and services, are the only crucial macro economic data which has come for the month of October. Though GST collections at Rs 1.3 trillion are also for the month of October, those basically belonged to the transactions carried out in September.

       According to respondents of the PMI services survey, ongoing improvements in demand boosted growth of sales and subsequently output. New work intakes increased at a sharp and accelerated rate, the strongest since July 2011.

       Companies linked sales growth to better underlying demand and successful marketing.

       Firms were able to secure a healthy intake of new work despite charging more for their services. Output prices rose at a solid rate that was the strongest since July 2017. Anecdotal evidence suggested that additional cost burdens were passed on to clients. The rate of inflation was at a six-month high and outpaced its long-run average. Companies cited higher fuel, material, retail, staff and transport costs.

       Companies were concerned about the impact of inflationary pressures on the recovery, dampening their sentiments.

       However, Pollyanna De Lima, economics associate director at IHS Markit, said," A substantial rise in prices charged for the provision of services in India had no detrimental impact on demand... Business confidence remained subdued in the context of historical data."

       The very fact that companies were able to increase the selling price of their products indicated that demand has come back for the services sector.

       Rahul Bajoria, chief India economist at Barclays, said, "The robust recovery likely signals strong pent-up demand of the domestic economy amid an ongoing festive season."

       "Hence, the recovery of the sector entered its third straight month, with firms scaling up activity at the fastest pace in ten-and a-half years and creating more jobs," Lima said.

       The data, however, continued to point to weak international demand for Indian services. New export business decreased in October, a trend that has been recorded since the Covid-19 outbreak. Despite being solid, the rate of contraction was the weakest since March.

       Since PMI manufacturing was also at an eight-month high in October, the Composite PMI Output Index rose from 55.3 in September to 58.7, signalling the strongest monthly expansion since January 2012.

       Bajoria said October marks the third month following the second Covid wave in which the services PMI exceeded the manufacturing PMI, reflecting a shift in sequential growth drivers.