August services activity up at 3.5-year high

Source: The Economics Times, Sept 06, 2016

NEW DELHI: India’s services activity jumped to a more than three-and-a-half year high in August, a private survey showed, providing some comfort about the economy looking up and indicating that the poor first quarter was likely an aberration.

The Nikkei India Services Business Activity Index came in at 54.7 in August, a sharp spike from 51.9 in July and the highest since January 2013, riding on strong local and foreign demand.

A reading above 50 on this survey-based index indicates expansion, while a figure below that denotes contraction. The services data follows strong gains in the agency’s Purchasing Managers’ Index (PMI) for manufacturing in August and in the double-digit car sales growth by many manufacturers last month.

“The service sector showed upbeat levels of performance in August…a further uptick in backlogs-the sharpest in nearly two years – may lead service providers to create jobs in coming months,” said Pollyanna De Lima, an economist at Markit and author of the report.

India’s economic growth unexpectedly slowed to 7.1 per cent in the April-June quarter from 7.9 per cent in the previous three months, with investments declining sharply, triggering concerns that there was no pickup in activity.

Data released by the agency last week showed that India’s manufacturing output grew at the fastest pace in 13 months in August. Put together, the seasonally adjusted Nikkei India Composite PMI Output Index climbed to a 42-month high of 54.6 in August from 52.4 in July, highlighting strong improvement in private sector economic activity.The sub-index for new business climbed to 54.5 in August, the highest since February 2013.

A better monsoon and higher salaries for central government employees with the implementation of the Seventh Pay Commission’s recommendations are expected to give a boost to consumption in the coming months.

There was a negligible increase in average output charges in August, with most companies reporting no change in selling prices, suggesting overall inflation could remain muted, giving the Reserve Bank of India some scope to ease its monetary policy.

On the employment front, there was a slight decrease in jobs for the first time in 11months. De Lima said the PMI data suggests that the service sector looks set to maintain its strong performance in the months ahead.


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