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India Services Activity In June Expands At Fastest Pace In A Year

Activity in India’s services sector, that contributes about 60 percent to the GDP, improved at the fastest pace in a year in June. This was largely due to the highest yearly growth in new businesses on the back of rising demand.

The Nikkei India Services Business Activity Index rose to 52.6 last month from 49.6 in May, according to a statement by research firm IHS Markit, which compiles the index. A reading below 50 indicates contraction in activity, while a number above it signals expansion. The 52.6 index reading is the highest since June last year when it stood at 53.1.

Jobs growth also picked up last month, recovering from the five-month low seen in May. “In response to an improvement in demand conditions, service providers raised their staffing levels at a faster pace than in the previous survey period,” said Aashna Dodhia, Economist at the research firm in a statement.

The Nikkei India Composite PMI Output Index also rose to 53.3 in June from 50.4 in the previous month. The Index reading was the strongest since October 2016, aided by strengthening growth in the key manufacturing and services sectors.

On the flip side, inflationary pressures continued to sustain, with anecdotal evidence hinting at higher fuel cost being the cause. The surveyed service providers also said that they were unable to fully pass on the high input cost pressure to price-sensitive consumers. “Firms raised their output charges at the slowest pace in over a year,” IHS Markit said.

Taking the lead, business sentiment across the sector dipped to the lowest level since October last year. Even manufacturing companies reported business confidence for the 12-month outlook at a weak level.

Overall input costs rose at the strongest rate since July 2014,and amid a weak rupee and higher oil prices, signalling that inflation may remain elevated. Given these circumstances, the chances of further monetary policy tightening have heightened.
Aashna Dodhia, Economist, IHS Markit