In April, India’s services growth slowed to a three-month low, as input costs soared.

Even as the Covid-19 crisis worsened and cost pressures soared at their fastest pace in nine years, growth in India’s dominant services sector slowed to a three-month low in April.

According to a private survey, growth in India’s dominant services sector slowed to a three-month low in April, but remained surprisingly resilient even as the COVID-19 crisis worsened and cost pressures grew at the fastest rate in over nine years.

The Nikkei/IHS Markit Services Purchasing Managers’ Index dropped to 54.0 in April from 54.6 in March, its lowest level since January, but still well above the 50-point threshold that separates expansion from contraction, and well above forecasts in a Reuters poll for a drop to 51.1.

“While firms expect higher production volumes in the coming year, worries about the pandemic have dampened business sentiment,” said Pollyanna De Lima, economics associate director at IHS Markit.

Despite the fact that the new business sub-index remained unchanged from March and business expectations remained optimistic, optimism about the year ahead dropped to a six-month low.

That jibed with a Reuters poll released last week, which found that, while the record-breaking COVID-19 second wave has not yet had a significant effect on economic growth estimates, further downgrades are likely.

The number of coronavirus infections in India surpassed 20 million on Tuesday, thanks to 357,229 new cases in the last 24 hours, while deaths increased by 3,449, bringing the total to 222,408.

At least 11 states and regions have imposed travel restrictions to combat the outbreak, but Prime Minister Narendra Modi’s government, which has been chastised for allowing the crisis to spiral out of control, is hesitant to declare a national lockdown due to economic concerns.

“Global shortages of inputs and higher transportation costs continued to exert upward pressure on outlays,” De Lima said.

“The difference between input price and charge inflation rates was one of the widest since the global financial crisis.”

Selling rates increased slightly as few businesses passed on the expense burden to customers, with 98 percent of respondents keeping fees the same to secure orders and stay competitive.

Firms reduced headcount for the fifth month in a row, but just marginally. Just 3% of businesses have laid off staff.

The new export market sub-index was even lower than in March, as travel restrictions exacerbated a drop in foreign demand that has been on the decline since the pandemic began in March 2020.

Manufacturing activity increased marginally in April, but the composite PMI fell to 55.4 from 56.0 in March due to a drop in the services reading.