Service activity expands in March, PMI rises to 51.5

NEW DELHI: India’s services sector expanded for a second straight month in March as the impact of demonetisation waned, helping create more jobs, a private business survey showed on Thursday.

The Nikkei/IHS Markit Services Purchasing Managers’ Index rose to 51.5 in March from 50.3 in February. A reading of over 50 on the index indicates expansion while that below the benchmark denotes contraction.

“The Indian service sector moved further away from the demonetisation-related contractions seen towards the end of 2016 and beginning of 2017,” the survey said. Sector optimism hit a fourmonth high in the survey.

A sister survey on Monday showed manufacturing activity scaling a five-month high.

The seasonally adjusted Nikkei India Composite PMI Output Index that measures both services and manufacturing rose to 52.3 in March from 50.7 in February.

“India’s private sector economy stayed on an upward trajectory during March, benefiting from an upswing in demand and output. The country’s rapid recovery from the demonetisation-related downturn was accompanied by job creation and softer inflationary pressures," said Pollyanna De Lima, economist at IHS Markit and author of the report.

Underpinning the expansion in services activity was a back-toback rise in new business inflows that allowed higher output.

On Thursday, the Reserve Bank of India said that India’s gross value added growth could strengthen to 7.4% in 2017-18 from 6.7% in the previous fiscal while keeping interest rates unchanged.

The government expects the economy to clock 7.1% growth this fiscal. RBI does not give GDP forecast.

Some services companies increased selling prices in March, suggesting inflation pressures.

India’s retail inflation had risen to 3.65% in February after slowing to a five-year low of 5.17% in January, below the RBI’s target of 4%. Inflation is expected to average around 4.5% in the first half and 5% in the second half of this fiscal, RBI said.

OUTLOOK
Similar to manufacturers who were more upbeat in March than in February, almost a quarter of services sector panellists signalled positive sentiment, with better marketing campaigns, strengthening demand conditions and hopes that the Goods & Services Tax bill will be favourable to businesses, the key factors supporting confidence. The improvement in business conditions promoted job creation, while confidence in activity in the year ahead was at a four-month high. Services companies indicated that activity is expected to expand in the next 12 months.