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India services activity recovers to grow in December

04 January, 2018

Activity in India’s services industry bounced back to modest growth in December after contracting in the previous month, a private survey showed on Thursday, as new business orders stabilised and price increases slowed.

The Nikkei/IHS Markit Services Purchasing Managers’ Index, which is based on a survey of private sector companies in Asia’s third largest economy, rose to 50.9 in December from 48.5 in November. The 50 mark separates growth from contraction.

However, expansion in just some industries such as information & communications and finance & insurance primarily drove overall business activity.

Other services firms continued to suffer from disruptions caused by confusion over how to implement a sweeping new national goods and services tax, which delayed payments between businesses, clients and suppliers.

Still, hiring by Indian services firms rose at the fastest pace since September and remained above average, underpinned by an overall improvement in expectations of future business conditions.

“India’s service economy showed signs of recovery as it returned to marginal expansion in December,” Aashna Dodhia, an economist at IHS Markit, said in a release.

“That said, it remained on a weak growth trajectory amid reports that Goods and Services Tax (GST) was still hindering efforts to secure new clients.”

Services activity contracted in four of the 12 months in 2017 compared with only twice in each of the two previous years.

The input prices index declined last month after hitting a four-year high in November, easing the squeeze on margins and allowing services firms to price a bit more competitively.

“Encouragingly, service providers were offered some respite around inflationary pressures, as input cost inflation registered below the series trend,” said Dodhia.

This supported a recovery in overall demand and stabilised incoming new business, which had contracted in November.

Lower price pressure in the services sector over the past month, however, is unlikely to bring retail inflation to below the Reserve Bank of India’s medium-term target of 4 percent in coming months.

Factory activity expanded at the fastest pace in five years in December, a survey showed on Tuesday. Combined with the rebound in services industry, that helped lift the composite index to 53.0, the highest in 14 months.

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India services activity recovers to grow in December

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