Services expand for 15th month, but at lower rate

NEW DELHI: India’s services economy expanded for the fifteenth month in July though the pace of growth moderated from the 31-month peak reached in June, a private gauge showed on Wednesday.

The HSBC Business Activity Index, a purchasing managers’ index (PMI) for services, slipped marginally to 61.7 in July from 64, but stayed well above the halfway mark, indicating a robust growth in services.

A reading in excess of 50 on PMI shows expansion, below that contraction. “India’s service sector is gearing down a notch, albeit from an extremely fast pace. This doesn’t imply that the engine is stalling, however,” said Frederic Neumann, Co-Head of Asian Economics Research at HSBC. The strong growth bodes well for India’s overall economic growth given the over 60% share services have in the GDP.

India’s economy is projected to grow at 8.5% in the current fiscal. The over 350-firm survey showed that services companies continued to look for additional workers to cope with greater market demand, particularly to meet new orders for business in communication and hospitality. The HSBC India Services PMI is compiled every month from replies to questionnaires sent to purchasing executives in around 350 private service sector companies. PMIs are usually the first set of leading indicators of economic activity.

All the sub-indexes of the survey dropped in July except input price inflation, which went up as impact of increase in fuel prices and high food inflation made inputs dearer.

Input price inflation index rose to 58.5 in July from 55.2 in June. “Evidently, the slowdown in services has so far done little to ease cost pressures in the economy... Officials, therefore, cannot afford to let down their guard, and more interest rate hikes are on the horizon,” said Neumann.

The prices charged index saw a negligible fall from last month’s levels, but the survey said it still pointed to another solid increase in rates charged by Indian service providers.

Employment and outstanding business growth nearly ground to a halt, the survey showed.

The HSBC India Composite Output Index, a composite PMI for services and manufacturing, fell to 61.9 in July, from a twenty-three month high of 62.8 in June.