Services sector activities in July not only returned to growth territory from contraction in the previous month but expanded to a 12-month high on new business orders, showed the widely-tracked Nikkei purchasing managers’ index (PMI).
PMI rose to 53.8 in July from 49.6 in June. In PMI parlance, a print above 50 means expansion while a score below that denotes contraction.
The data came on a day when the Reserve Bank of India’s monetary policy committee (MPC) met. The MPC will take a call on the policy rate on Wednesday. However, economists believe that PMI is just an exception. All other parameters show the economy is on the downswing.
“Notwithstanding uptick in the services PMI, a variety of other indicators point to a slowdown in economic growth. With the CPI inflation well below the medium target, we expect the MPC to reduce the repo rate by 25 basis points in the upcoming policy,” said Aditi Nayar, chief economist at ICRA.
In the PMI survey as well, inflation — both at input and output levels — remained subdued. On the other hand, job creation has picked up. “PMI data indicated that the strongest upturn in new work for nearly three years led to a rebound in business activity,” said Pollyanna de Lima, principal economist at IHS Markit.
Survey respondents linked the upturn in business activity to a promising Budget, strengthening demand and new client wins.
New businesses have been secured from the public and private sectors, as well as domestic and international markets, they said, adding that new export work rose for the fifth straight month in July.
“These favourable results from the services sector were accompanied by improved momentum among goods producers, which combined showed the sharpest rise in output for eight months,” Lima said.
Meanwhile, the IHS Markit India Composite PMI Output Index, which maps both manufacturing and services industry, touched an eight-month high of 53.9 in July from 50.8 in June, as aggregate new orders rose to the greatest extent since last November.
Moreover, job creation was the strongest since early 2011 in response to strengthening demand conditions and upbeat predictions on the economic outlook.
“India’s labour market continues to go from strength to strength, with the pace of services sector job creation the highest in over eight years. Ongoing expansion in the employment base should support household spending and consumer confidence in the near term,” Lima said.
The survey further noted that the July data indicated an improvement in business optimism across the services economy.
Also, companies expect advertising efforts and strengthening market conditions to support growth in the next 12 months.