Nikkei India Services Business Activity Index rises to 54.3 in March from 51.4 in February 2016
Economic conditions in India's service sector continued to improve in March 2016, as a marked and accelerated increase in new business boosted output growth. That said, latest data indicated that businesses still operated below capacity, as backlogs declined for the second straight month and at the quickest rate in seven years. On the price front, both input costs and output charges rose at rates that remained below their respective long-run averages and were only modest.At 54.3 in March (February: 51.4), the seasonally adjusted Nikkei India Services Business Activity Index recorded its joint-highest level since June 2014 and pointed to a solid expansion in output. Sub-sector data indicated that activity rose in five of the six monitored categories, the exception being Transport & Storage.
Growth of manufacturing production also gained strength, therefore contributing to a marked expansion in private sector output. The Nikkei India Composite PMI Output Index climbed from 51.2 in February to a 37-month high of 54.3 in March.
Incoming new work in the Indian private sector economy rose for the ninth month running and at the fastest pace in over three years. Stronger increases were noted in both the manufacturing and service sectors, which companies associated with an improved demand environment.
Despite the solid upturns in new business and output, the trend in employment remained subdued. Job creation across the private sector as whole was seen for the sixth straight month, but the rate of growth remained fractional overall.
March data highlighted ongoing spare capacity in India's service economy, as unfinished business fell for the second consecutive month. Moreover, the rate of backlog depletion was sharp and the most pronounced since March 2009. Work-in-hand at manufacturers declined for the first time since last October.
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Amid reports of higher prices paid for a range of raw materials, services input costs increased on average. March saw a modest rate of inflation that was little-changed since February and weak by historical standards. Purchase price inflation among goods producers was at a three-month high.
The improving demand environment enabled service providers to continue to pass on to their clients part of the additional cost burden. Tariffs were raised at a slightly faster rate than in February, but one that was modest overall. After offering discounts in the prior month, manufacturing companies raised their charges in March, although only modestly.
Indian services companies remained optimistic that activity will increase further over the coming 12 months. The level of confidence was at a nine-month high, with positivity linked to favourable government policies and forecasts of a pick-up in demand.
Commenting on the Indian Services PMI survey data, Pollyanna De Lima, economist at Markit, which compiles the survey, said:
"March PMI surveys signalled a reassuringly robust end to the financial year for the Indian economy, with sharper increases in new business spurring activity growth in both the manufacturing and service sectors.
"One disappointment, however, is the trend in employment, which showed little-change through much of 2015-16. With the sole exception of the mild increase in hiring seen among service providers during last July, the two surveys collectively have signalled a broadly stagnant labour market for the past two years.
"Input costs across the private sector meanwhile rose at the quickest rate in three months and charge inflation likewise accelerated, suggesting that headline inflation may pick-up in coming months. That said, increases in prices remained relatively modest."
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