Service sector activity hits 7-month high in January

Services sector in India, which is by far the main contributor to the Indian economy, expanded at the fastest pace in seven months in January, according to a HSBC survey. This contrasts with a relative decline in factory activity last month.

Business sentiment for the services sector as measured by the HSBC Purchasing Managers' Index (PMI), adjusted for seasonal factors, rose to a seven-month high of at 52.4 in January. PMI, compiled on a monthly basis by global bank HSBC, measures economic health of a sector based on surveys of private sector companies. A reading of above 50 on the index denotes expansion.

The composite services PMI output index increased at a weaker pace than the historical average rising to 53.3 but marked an expansion for the nine straight month.

Pranjul Bhandari, chief economist for HSBC in India, credited the expansion in service sector to an increase in activity and orders. "Business sentiment led by anticipated improvements in demand and new commercial initiatives, rose to a seven-month high. On the inflation front, both input and output prices rose further, though at a modest pace when compared to historical trends," he said.

The India Services PMI covers hotels & restaurants, transport & storage, financial intermediation, renting & business activities, post & telecommunication and other services. The fastest growth was in ‘other services’ while financial intermediation as a sub sector lost some pace, as per the survey.

The data for services sector contrast with that of manufacturing sector. Indian factory output in January expanded at a slower pace than the previous three months with HSBC PMI falling to a three-month low of 52.9 last month from December's two-year high of 54.5.

In a recent survey of professional forecasters by the RBI, service sector was seen growing at 7 per cent for this year and 7.5 per cent for the next.

The 27 professional forecasters who participated in the January 2015 RBI survey expect the real GDP to increase to 5.4 per cent in the current fiscal and 6.4 per cent in the next.

On Tuesday, RBI maintained status quo on key monetary policy rate but in an effort to boost liquidity slashed the Statutory Liquidity Ratio by 50 basis points. The central bank indicated that it would wait for inflation data and the Union Budget to be announced at the end of this month before taking any policy action.

(Edited by Joby Puthuparampil Johnson)

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