Business activity in the services sector picked up pace in May, driven mainly by an increase in new business and an easing of input costs, according to a survey.
The Nikkei India Services Purchasing Managers’ Index (PMI) rose to 52.2 in May from 50.2 in April. A reading above 50 indicates expansion in business activity while one below 50 denotes a contraction.
“The pick-up in service sector growth seen mid-way through the first quarter suggests that GDP could expand at a faster rate should growth momentum be maintained in June, though there are downside perils to this,” said Pollyanna De Lima, economist,IHS Markit and author of the report, said.
The report said service providers hired additional staff in May to cope with the greater workload and that the rate of jobs growth accelerated to the fastest in almost four years in that month.
New business inflow
“The Indian service sector recovered some recent lost ground, with a quicker rise in new business inflows boosting growth of both activity and employment in May,” the report said. “Input costs and output charges increased at softer rates that were broadly negligible in the context of historical PMI data.” “Supporting the pick-up in services activity growth was a quicker rise in new business inflows,” the report added.
“Anecdotal evidence indicated that the increase in new work was a reflection of better underlying demand. The stronger upturn in services new work counterbalanced the slowdown in growth of manufacturing orders and new work across the private sector economy as a whole expanded at a faster pace than in April.”
“Despite accelerating from April, rates of increase in both services activity and new work are much weaker than typical for India,” Ms. De Lima added. “Moreover, business confidence fell as a reflection of firms’ concerns regarding competitive pressures and lacklustre demand.”
Ms. De Lima added that worries that this period of lower-than-average growth in both services and manufacturing may prompt the Reserve Bank of India to cut interest rates to boost the sectors.