Services sector activity accelerated to an eight-month high of 53.1 in June due to a sharp rise in new orders, according to the Nikkei India Services Purchasing Managers’ Index (PMI).
The index reading was 52.2 in May. A reading above 50 indicates an expansion in activity while a value below 50 denotes a contraction. The strong performance in June also suggests that GDP growth is likely to rebound from the poor showing in the fourth quarter of financial year 2016-17, according to the report’s author, Pollyanna De Lima.
‘Hard road ahead’
However, she noted that the path to a stronger economic performance is still not easy, with concerns over the Goods and Services Tax playing a large part in dampening optimism in the sector.
“Nonetheless, the falls in confidence levels highlight no easy walk to stronger economic prosperity,” Ms. De Lima said. “Optimism weakened at goods producers and service providers alike, hampered by concerns among some firms that the GST could harm consumer demand, with competitive pressures also seen as a threat to the outlook.”
“Business conditions in India’s service sector continued to improve in June as a solid and accelerated upturn in new work resulted in a faster increase in activity,” the report said.
Also, “job creation was maintained at May’s 47-month record pace.”
“According to survey participants, improved demand conditions and marketing efforts enabled them to secure new work. Factory orders also rose, but to the least extent in four months.”
The strong performance in the services sector came at a time when the manufacturing sector slipped to a four-month low in June.
“With services being the prevalent sector in India, the fainter rise in manufacturing was more than offset and growth of private sector output climbed to an eight-month peak,” Ms. De Lima said. “What’s more, June’s figure contributed to the highest quarterly average for the composite PMI (52.2) since Q2 (FY) 2016. This suggests that GDP growth is likely to rebound from the sharp slowdown noted in the first three months of 2017.”
