An employee prepares a drink at a Tea Trails cafe in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

May Services Sector PMI Growth Fastest In Four Months

Services sector activity in India grew at the fastest pace in four months in May on higher work orders as companies inducted more people to cope with greater workloads, a monthly survey said.

The Nikkei India Services Purchasing Managers' Index (PMI), which tracks services sector output on a monthly basis, rose to 52.2 in May from 50.2 in April.

The Nikkei India Services PMI posted above the critical 50.0 level, which separates growth from contraction, for the fourth month running in May.

The pick-up in service sector growth seen mid-way through the first quarter (January to March) suggests that GDP could expand at a faster rate should growth momentum be maintained in June, though there are downside perils to this.
Pollyanna De Lima, Economist, IHS Markit

Service providers took on extra staff in May in order to cope with greater workloads. Although the rate of job growth was modest, it was the fastest in almost four years.

Job creation at services firms also mirrored expectations of output growth, with panelists mentioning new offerings, business expansion plans, more marketing and favourable government policies as the key factors supporting positive sentiment regarding the 12-month outlook.

However, there are worries surrounding an increasingly competitive environment that weighed on confidence of service providers and optimism was at a three-month low.

Composite PMI Reaches 7-Month High

The Nikkei India Composite PMI Output Index, that maps out both the manufacturing and services sector activity, reached a seven-month high of 52.5 in May from 51.3 in April, as the stronger upturn in services sector counterbalanced the slowdown in growth of manufacturing orders.

Despite accelerating from April, rates of increase in both services activity and new work are much weaker than typical for India. Moreover, business confidence fell as a reflection of firms’ concerns regarding competitive pressures and lacklustre demand.
Pollyanna De Lima, Economist, IHS Markit

On price rise, the report said, inflation rates were muted which was lower than the long-run average.

Lima further noted that "...worries that this period of uninspiring growth may continue for some time might prompt the RBI to lower the benchmark rate in order to support the economy".

The Reserve Bank of India, in its monetary policy review meet on April 6, kept the repurchase or repo rate, at which it lends to banks unchanged at 6.25 percent, but increased the reverse repo rate to 6 percent from 5.75 percent. RBI's next policy review is scheduled this week.