Services sector saw a slight expansion in September as businesses recovered from contractions related to the goods and services tax in the previous two months.

The Nikkei India Services PMI Business Activity Index pointed to a return to growth of output and rose to 50.7 in September from 47.5 in August.

A reading above 50 on the index indicates growth and the one less than that denotes contraction.

With improvements in both the manufacturing and services sector, the Nikkei India Composite PMI Output Index also rose to 51.1 in September from 49 in August.

Significantly, the improving economic environment supported job creation, with services employment in fact increasing at the fastest rate in 75 months.

“The Indian private sector regained some lost ground since the implementation of July’s GST as service providers followed the manufacturing industry back to growth. The service sector registered slight expansion in output and new orders,” said Aashna Dodhia, Economist at IHS Markit.

“The labour market was strengthened over the month as the pace of job creation quickened to the fastest since mid-2011, led by transport and storage and consumer services sub- sectors,” Dodhia said.

On the inflation front, input cost accelerated in September while output charges rose at the weakest rate since June.

The survey further noted that service providers remained optimistic towards growth prospects over the coming 12 months, but their confidence dropped to a three-month low at the end of the third quarter (July-September).

Dodhia, however, noted that the composite PMI for the July-September quarter indicated the lowest average since October-December 2013 “as the private sector transitions from recent structural shocks“.

The Reserve Bank, in its policy review meet on October 4, had kept the benchmark interest rate unchanged on fears of rising inflation while lowering the growth forecast to 6.7 per cent for the current fiscal.

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