Triggering hopes of an economic revival, services — the dominating sector of the Indian economy — grew to a three-month high in December 2012, according to HSBC purchasing managers’ index (PMI). The index rose to 55.6 points in December, sharply higher than 52.1 points in November.
PMI for manufacturing, another crucial sector, was at a six-month high of 54.7 points in December from 53.7 points in the previous month. Combining the two, the HSBC composite PMI rose to a 10-month high of 56.3 points. In November, the index had posted 53.2.
India’s economy grew by just 5.4 per cent in the first half of this financial year (FY13). The finance ministry expects the economy to grow by 5.7-5.9 per cent in the entire fiscal, which requires the economy to recover in the second half.
However, official data give mixed signals. Industrial growth rebounded to 6.5 per cent in October, but core sector, having 38 per cent weight in the index to measure expansion in factory output, grew by just 1.8 per cent in November.
PMI measures the activity of private sector companies in India. It surveys around 350 companies in the services sector and a little more than 500 in the manufacturing field. An index reading above 50 points shows an expansion in business activity, while under 50 is a contraction. For the month of December, there was a steep rise in the private sector output. The rate of growth in new orders was at its peak since February.
“The services sector provided some holiday cheer with activity fully recovering after two months of deceleration, led by a sharp rise in new business,” Leif Eskesen, chief economist for India and Asean at HSBC.
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There was also easing in the input and output price inflation in the private sector. The inflation rate eased because the Reserve Bank of India (RBI) had kept the repo rate at eight per cent since April 2012, despite the mounting pressure to make cheap credit accessible.
However, Eskesen advised against raising of rates by the RBI, which is slated to come out with its monetary review later this month. “With growth showing signs of recovery and inflation still elevated, the case for a policy rate cut is not yet convincing,” he said. However, Eskesen said RBI was prepared for a rate cut in the first quarter of the current financial year.
“RBI has clearly teed up for rate cuts in January-March”, he said
There was an increase in the rate of employment in the services sector, although the increase in the rate of employment was the slowest in the last 10 months. Even though the input prices went up, the rate of growth in the input prices was at a 30-month low. The volume of the work undertaken by the private sector, too, went up.
As many as 46 per cent of the companies surveyed for PMI said they expected an expansion of activity in the next year. Given the weakening state of the economy, the performance of the services sector is promising.