Services sector buoys India’s economic activity

Mumbai, Jan 6 (IANS) Services sector expansion buoyed the overall economic activity in India during December, a key macro economic data showed on Wednesday.

The Nikkei India composite PMI (purchasing managers’ index) which is a key macro data that indicates monthly trends in overall economic activity rose to 51.6 in December from 50.2 in November.

An index reading of above 50 indicates an overall increase in the economic activity, while below 50 an overall decline.

The composite PMI weighs the average of the manufacturing output index and the services business activity index. It is based on original survey data collected from around 700 companies spread across sectors in India.

The composite PMI report published by the leading global diversified provider of financial information services — “Markit” disclosed that the latest improvement was driven by services, as sentiment turned positive for the sector.

However, manufacturing production capped the gains, as it declined for the first time since October 2013.

“The Indian private sector returned to expansion territory at the end of 2015, eking out modest output growth in December,” said Pollyanna De Lima, economist with Markit.

“A stronger rise in new business and an improvement in year-ahead expectations at service providers are positive developments, but the overall health of the economy remains fragile amid a weak manufacturing sector.”

On a standalone basis, the Nikkei India manufacturing PMI recorded a 28-month low in December at 49.1, down from 50.3 reported in November.

According to De Lima, goods producers saw both order books and production dip for the first time in over two years.

“Whereas manufacturers linked the slump to the Chennai floods, growth of new orders and output had been on a downward trend in recent months,” De Lima said.

The Nikkei services business activity index for December stood at 53.6 from November’s 50.1.

The services index noted growth in four out of the six surveyed categories, led by ‘other services’ and financial intermediation.

The survey revealed an increase in new business inflows and improvement in demand conditions for the services sector.

Notwithstanding the rise in new business generation, services sector employment levels remained unchanged.

On the other hand, goods producers hired additional staff, but the rate of job creation was only marginal.

“Firms’ reluctance to hire was evident throughout 2015, with meaningful job creation last recorded in 2013. This suggests that conditions are likely to remain challenging in the near-term,” elaborated De Lima.

The survey pointed out a rise in input cost for the services sector which touched a seven-month high.

Besides, the input prices across the private sector increased at the fastest rate since May.

The report cited that the services companies increased their selling prices in the month under review for the first time since August.

In addition, factory gate prices, too, rose, which led the private sector to report a rise in charges for a second successive month.

“Cost inflation continues to surpass charge inflation, highlighting the intense competitive environment,” added De Lima.

On future outlook, the survey predicted growth in the coming 12 months, linked to hopes of a better demand conditions.

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