Indian services firms return to growth as demand picks up PMI

9th April 2018

India’s services industry returned to growth in March as new business picked up on improved demand, a private survey showed on Thursday, encouraging firms to hire at the fastest pace in nearly seven years.

Hit by disruptions from a shock ban of high value currency notes and confusion around product pricing after the implementation of a new tax, the services industry had a disappointing fiscal year 2017/18.

Performance in March, the final month of the last fiscal year, was only slightly better.

After taking a big hit in February, the Nikkei/IHS Markit Services Purchasing Managers’ Index managed to narrowly push back above the 50-mark that separates growth from contraction, rising to 50.3 last month from 47.8.

“India’s service activity stabilised at the end of the quarter, underpinned by a renewed rise in new work. Anecdotal evidence highlighted an improvement in demand conditions,” Aashna Dodhia, an economist at IHS Markit wrote in a release.

The new business sub-index that tracks overall demand also returned to growth in March, rising to 50.6 from 48.0 in a reflection of increased levels of new work.

A slower increase in input costs allowed services firms to increase prices at a shallower pace in March, alleviating some of the burden on consumers.

Still, inflation is projected by the Reserve Bank of India to be above its medium term target of 4 percent in 2018.

The RBI is expected to keep its policy steady this year but shift to a hawkish stance by end-2018, according to a Reuters poll of economists last week.

Optimism was at an eight-month high, the survey found, which alongside increasing demand pushed firms to hire at the fastest pace since June 2011.

The service industry’s bounce offset a slower pace of manufacturing growth and pushed a composite index, which takes into account performance of both sectors, to rise to 50.8 last month from 49.7.

Source: REUTERS