Boosted by surge in new businesses, services activity picks up pace in May

NEW DELHI: After the better core-sector and manufacturing-activity numbers, there is more good news for the economy. Activity in the services sector expanded for the first time in nearly a year in May, boosted by a surge in new businesses, a private survey showed.

The HSBC Purchasing Managers’ Index ( PMI) rose to 50.2 points in the past month from 48.5 in April, scaling over the 50-point mark that separates expansion from contraction after 10 months.

The growth in the largest sector of the economy, contributing about 60% to the overall gross domestic product, had slowed down significantly in the past year.

“At last, a gradual improvement in services activity, with the index creeping above the 50 level after nearly a year. Fortunately, this momentum will be further supported by the strong election results,” said Frederic Neumann, co-head of Asian economic research at HSBC.

The services sector expanded by 6.7% in 2013-14 compared with 7% in the previous fiscal year, according to recent data from the Central Statistical Office.
Divergent trends were seen at the sub-sector level, with only post and telecommunication as well as renting and business Activities registering higher output, the report based on the survey of 350 private sector firms said.

The Composite Output Index, which takes into account both manufacturing and services, rose to 50.7 in May, after two straight months of contraction.

Indian service providers were optimistic in May that activity would increase over the next 12 months. Marketing campaigns, the end of the elections and the launch of new services are expected to promote new business growth, and therefore output, the report said.

HSBC’s manufacturing PMI for May inched up to 51.4 points from 51.3 in the previous month. Meanwhile, the output of eight core industries increased 4.2% in April, boosted by higher electricity, fertiliser and cement production, government data showed.

The central bank on Tuesday left its key policy interest rate unchanged, but moved to improve cash availability in the banking system by reducing the statutory liquidity ratio, or the portion of deposits that banks must invest in liquid securities like government bonds, by half a percentage point. The Reserve Bank of India said its future policy stance would depend on price movements.

“RBI is likely to retain its hawkish stance given the increased risks attached to inflation,” said Neumann.

Inflation based on the wholesale price index eased to a lower-than-expected level of 5.2% in April from 5.7% the previous month.

The latest services data indicated that staffing levels in the private sector were broadly unchanged. Workforce numbers increased at manufacturing firms, but stagnated in the service economy.