Service activity expands in March, PMI rises to 51.5

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NEW DELHI: India’s service sector activity strengthened in March along with improved business conditions which promoted job creation in the month, a private business survey showed on Thursday.

The Nikkei/IHS Markit Services Purchasing Managers’ Index rose to 51.5 in March from 50.3 in February. A reading of over 50 on the index indicates expansion while that below the benchmark denotes contraction.

“The Indian service sector moved further away from the demonetisation-related contractions seen towards the end of 2016 and beginning of 2017,” the survey noted.

A sister survey on Monday showed expansion in manufacturing activity.

With manufacturing production at its five month high and services sector showing a revival, the seasonally adjusted Nikkei India Composite PMI Output Index rose to 52.3 in March 50.7 in February.

“India’s private sector economy stayed on an upward trajectory during March, benefiting from an upswing in demand and output. The country’s rapid recovery from the demonetisation-related downturn was accompanied by job creation and softer inflationary pressures,” said Pollyanna De Lima, economist at IHS Markit and author of the report.

Underpinning the expansion in services activity was a back-to-back rise in new business inflows. As was the case for output, growth of new work also gathered pace in March. Anecdotal evidence highlighted improving demand conditions. At the same time, factory new orders increased at the strongest rate since last October.

Amid reports of the passing on of higher cost burdens to clients, some services companies raised their own selling prices in March.

India’s retail inflation had risen to 3.65% in February after slowing to a five year low of 5.17% in January- below the Reserve Bank of India’s target of 4%. Though the RBI is expected to keep rates unchanged, this will be taken into account in the monetary policy statement which is scheduled for Thursday.

Outlook
Similar to manufacturers who were more upbeat than February, almost a quarter of service panellists signalled positive sentiment, with better marketing campaigns, strengthening demand conditions, plus hopes that the Goods & Services Tax bill will be favourable to businesses, the key factors supporting confidence.

Services companies indicated that activity is expected to rise over the coming 12 months, with the overall degree of optimism at a four-month high