Services sector improves further on new business orders

Services sector improved further in August as new orders received by private firms increased at the fastest rate in five months, says a survey.

The Nikkei India Services Business Activity Index, which tracks changes in activity at service companies on a monthly basis, rose from 50.8 in July to 51.8 in August, pointing to a faster, although modest, expansion in output.

A reading below 50 means contraction in the sector.

"Economic growth across India was boosted by improvements in the service sector.

"While increases in activity and new business across the sector accelerated in August, moderations in growth rates were noted at goods producers," Pollyanna De  Lima, economist at Markit, which compiles the survey, said.

According to panelists, higher demand coupled with capacity improvements and increased marketing all had contributed to the latest expansion in new business.

Improvement was also seen in the seasonally adjusted Nikkei India Composite PMI Output Index, which rose to a five-month high of 52.6 from 52.0 in July.

The standout feature from the latest PMI data set was the situation of the labour market, as both manufacturers and service providers left payroll numbers unchanged in August, with significant job creation not seen since early 2014, the survey said.

"While the path ahead for the economy looks unclear, firms' reluctance to hire persists," Lima added.

Meanwhile, the services companies' business expectations index dipped to a survey low, reflecting firms' concerns around future economic conditions and exchange rate movements.

On the monetary-policy front, Lima said that ‘with growth remaining relatively weak and survey evidence pointing to a lack of inflationary pressures across the country, further rate cuts are on the cards.’

The GDP data released on August 31 also showed the growth rate slipping to 7 per cent in the April-June quarter, from 7.5 per cent in the preceding quarter.

Besides, the infrastructure sector output growth also slowed down to a three-month low of 1.1 per cent in July, further making case for a rate cut by RBI.

RBI Governor Raghuram Rajan, in his third bi-monthly policy of the fiscal, left benchmark lending rate unchanged at 7.25 per cent as also the cash reserve ratio at 4 per cent.

The image is used for representational purpose only. Photograph: Reuters