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'August services performance strengthens, expected to remain strong'

Sentinel Digital DeskBy : Sentinel Digital Desk

  |  4 Sep 2015 12:00 AM GMT

Mumbai, September 3: A leading business survey on the performance of services sector on Thursday showed a faster expansion for August 2015, supported by the growth in hospitality and communication industries. The Nikkei “Services Business Activity Index” for India for the last month stood at 51.8 from July’s 50.8.

An index reading of above 50 indicates an overall increase in the manufacturing sector, below 50 an overall decrease. The PMI series of data are published by the leading global diversified provider of fincial information services “Markit”. “Economic growth across India was boosted by improvements in the service sector,” Pollyan De Lima, economist at Markit was quoted in the report.

The report cited that the higher demand coupled with capacity improvements and increased marketing contributed to the latest expansion in new business.

The index revealed that the Indian services companies indicated that backlogs of work decreased in August, reflecting a general lack of pressure on capacity and efficiency improvements.

The results from the survey suggested that relatively weak increases the creation of “new businesses” influenced service providers to leave their work force levels unchanged. “The standout feature from the latest PMI dataset was the situation of the labour market. Both manufacturers and service providers left payroll numbers unchanged in August, with significant job creation not seen since early 2014,” De Lima said.

“While the path ahead for the economy looks unclear, firms’ reluctance to hire persists. This uncertainty towards output expectations was highlighted by the services Business Expectations Index dipping to a survey low.” Furthermore, the report pointed out that the input prices faced by Indian services firms rose for the ninth month running in August. This consequently led the services providers to raise their selling prices again in August. As per the responses, Indian services companies remained optimistic that business activity will increase over the course of the next year.

“However, the business expectations index dipped to a survey low, reflecting firms’ concerns around future economic conditions and exchange rate movements,” the report was quoted.

At the same time, the Nikkei India composite purchasing manufacturers index (PMI) which measures the combined performance of both the services and manufacturing sectors showed slight growth of 52.6 in the month under review from 52 during July.

The composite data showed that the uptick in growth was boosted by a quicker expansion of services activity, as the increase in manufacturing production softened in August. “While increases in activity and new business across the sector accelerated in August, moderations in growth rates were noted at goods producers,” De Lima explained. The composite PMI is based on data compiled from monthly replies to questionires sent to representatives in around 700 companies. The survey predicted further rate cuts by the apex bank due to weak growth in output of both services and manufacturing sectors. “On the monetary-policy front, the Reserve Bank of India (RBI) advocated a wait-and-see approach to setting the benchmark rate in August,” De Lima elaborated. “With growth remaining relatively weak and survey evidence pointing to a lack of inflatiory pressures across the country, further rate cuts are on the cards.”

After having cut the short term lending rate thrice thus far in this calendar year to bring it down to 7.25 percent, the RBI kept key lending rates unchanged during its last monetary policy meet held on August 4. RBI that time said that further cuts can only be effected if commercial lenders pass on the previous reductions to borrowers. RBI has so far reduced lending rates by 75 basis points in 2015. (IANS)

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