After dismal data on growth and production, the Indian economy today received a shot in the arm from the HSBC Purchasing Managers’ Index (PMI) for services The widely-tracked index rose to a three-month high of 54.7 points in May, against 52.8 points in April. The rise was attributed to a sustained increase in new work, said Markit Economics, which compiles the data.
A reading of more than 50 points denotes expansion, while that below 50 means contraction. Services PMI in May, however, was lower than the reading of 58 points in January.
The data follow the not-so-robust growth in services, along with contraction in manufacturing, pulling down growth in the gross domestic product for the quarter ended March 31 to an at least 32-quarter low of 5.3 per cent. Services rose 7.5 per cent in that quarter, against 10.4 per cent growth in the corresponding period of the previous financial year.
Optimism in the service sector was the highest in 15 months, with the Business Expectations Index rising by more than 14 points in May, compared to the reading in March.
“Activity re-accelerated, new orders came at a faster pace and employment continued to increase. As a consequence, businesses were more optimistic on the outlook for the coming 12 months," said Leif Eskesen, chief economist for India & the Association of Southeast Asian Nations, HSBC.
The HSBC Composite Output Index (covering manufacturing and services) stood at 55.3 points in May, compared with 53.8 in April. This was primarily because manufacturing PMI stood at 54.8 points in May, a tad lower than 54.9 points in April.
According to the HSBC services PMI, there was a continued increase in India’s service sector workforce. However, the growth in jobs was marginal. Composite data also showed a slight expansion in the private sector workforce.
Inflation remained high, as service sector companies continued to pass on higher costs to clients in May. Output inflation was the strongest in four months, and sharper than the survey’s long-term trend. Input prices rose the fastest in five months.
Eskesen said he found no ground for the Reserve Bank of India (RBI) to cut rates further. “While the more backward-looking GDP numbers suggest rising growth risks and pressures on RBI to cut rates, these also suggest the case may not necessarily be clear-cut. Certainly, there is no room for aggressive monetary policy easing over the near term,” he said.
In April, the central bank had cut the repo rate by 50 basis points to eight per cent.
