Services Business Activity Index at three-month high

Led by a faster growth in new business and lower prices, India’s services sector grew to a three-month high of 51.9 in July, according to the India Services Business Activity Index.

This was the 13th straight month of expansion in service sector activity. The index was marginally lower at 50.3 in June.

“Indian service providers enjoyed a welcome upturn in demand during July, with a faster increase in new business underpinning stronger growth of output and boosting confidence,” said Nikkei in a release on Wednesday.

A reading above 50 on the index denotes expansion while a reading below that reflects contraction.

With faster growth in manufacturing production, the seasonally adjusted Nikkei India Composite PMI Output Index also climbed to a three-month high of 52.4 in July as against 51.1 in June.

“The Indian service economy started the second semester on a solid footing, posting its strongest performance since April and thereby indicating that underlying demand conditions remained reasonably firm,” said Pollyanna de Lima, economist at Markit but cautioned that growth remained below par. The growth was centred in the sectors of post and telecommunication and financial intermediation categories, while there was decline in expansion hotels and restaurants, renting and business activities and transport and storage firms. Activity was broadly unchanged in the category of ‘other services’.

Business sentiment amongst service providers improved during July, with the degree of optimism reaching a four-month high.

However, service sector employment was broadly unchanged in July and less than one per cent of panelists took on additional workers.

“It has now been one year since the sector has seen meaningful job creation,” said the release.

For the first time since September last year, average input costs fell in July and led to an overall decline in selling prices.

Raising hopes of a cut in policy rates by the Reserve Bank of India (RBI) in its policy review on August 9, de Lima said, “Service providers signalled declining price pressures, with output charges being cut in line with an overall decrease in input costs.”

In its policy review meeting in June, RBI Governor Raghuram Rajan had maintained the interest rates intact, citing rising inflationary pressure and had indicated that a cut may be possible later after good monsoons.