Private sector activity expands as demand picks up

Private sector output across both manufacturing and services sector expanded in July compared with the previous month.

Expansion in new businesses in both manufacturing and services brought the Nikkei India Services Business Activity Index to a three-month high of 50.8 in July against 47.7 in June.

Nikkei services PMI, previously known as HSBC services PMI and compiled monthly by financial information services firm Markit, measures economic health of a sector based on surveys of private sector companies. A reading of above 50 on the index denotes expansion. 

The report highlighted that strengthening demand conditions in new service businesses and increase in manufacturing orders was the reason for expansion in private sector activity.

The report also highlighted the upturn in incoming new work led Indian service providers to take on additional workers in July. Although slight, the rate of job creation was the quickest in two years, the report said. 

“While it was welcome news to see a return to growth of activity in the Indian service sector during July, we are still looking at a modest improvement at best. The same could also be said for employment, which increased at the fastest pace for two years, but only slightly," said Andrew Harker, senior economist at Markit.

While the Reserve Bank in its meeting on Tuesday kept the rates on hold, the healthy rate of expansion in the manufacturing and service sector may prompt the RBI to cut rates one more time this year.

“When looking at the manufacturing and service sectors together, weak inflationary pressures and modest growth tend to support a more accommodative monetary policy environment,” Harker added.

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