India’s services sector expanded further in December — registering the fastest pace of growth in three months — driven by a sharp rise in new business orders, an HSBC survey said.

The HSBC’s Services Purchasing Managers Index (PMI) for December stood at 55.6, up from 52.1 in the previous month, signalling a sharp expansion in activity.

“The services sector provided some holiday cheer with activity fully recovering after two months of deceleration, led by a sharp rise in new business,” HSBC Chief Economist for India and ASEAN Leif Eskesen said.

The index had witnessed a significant decline in the previous two months — October and November. It had registered the fastest pace of growth in the seven months till September.

The index has remained above the 50-mark which indicates expansion since November 2011.

Business outlook

Going forward, service providers in India are optimistic about the business outlook. Around 46 per cent of monitored companies expect overall activity to increase this year, and anticipate higher demand, launch of new projects and increased advertising, HSBC said.

Earlier, an HSBC survey had shown that India’s manufacturing sector growth improved further in December, registering the fastest pace in six months, driven by a strong pick-up in new orders.

Composite output index

Accordingly, the HSBC India Composite Output Index — which maps both the manufacturing and services index — stood at 56.3 in December, up from 53.2 in November, registering the fastest pace of expansion since February.

The report further noted that additional workload also led to a rise in outstanding business.

Inflation

On prices, HSBC said inflation reading has eased a little, as the rates of input and output price inflation at private sector firms have declined.

“With growth showing signs of recovery and inflation still elevated, the case for a policy rate cut is not yet convincing. However, the RBI has clearly teed up for rate cuts in January-March,” Eskesen said.

Inflation as measured by all indices has remained elevated and the Wholesale Price Index-based inflation has remained above the RBI’s comfort zone of 5-5.5 per cent for nearly three years now.

Rate cut

In the mid-quarter monetary policy review on December 18, the RBI has kept key interest rates unchanged.

The central bank has left the short-term lending (repo) rate and the cash reserve ratio — the amount of deposits banks have to park with the RBI — unchanged at 8 per cent and 4.25 per cent, respectively.

(This article was published on January 4, 2013)
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