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India’s services sector grew at the fastest pace in the last three months during May, driven by robust growth in new orders and optimistic business outlook, says a HSBC survey.
The HSBC India Services Purchasing Managers Index (PMI) — an index of Indian services sector activity — bounced to a three-month high of 54.7 in May from 52.8 in April.
A reading above 50 shows that the sector is growing, while below 50 indicates that the segment is contracting.
May data
The May services PMI data showed a marked increase in the volume of work in-hand (but not yet completed) held at Indian service providers’ units and a continued expansion of India’s services sector workforce, HSBC said.
“Following last week’s release of the weaker than expected Q1 GDP numbers, the May PMI reading for the services sector was more encouraging,” HSBC Chief Economist for India and ASEAN, Mr Leif Eskesen, said.
Economic growth
India’s economic growth rate slowed to a 9-year low of 5.3 per cent in March quarter and 6.5 per cent for the entire 2011-12 fiscal.
At 6.5 per cent, the GDP growth in 2011-12 was lower than 6.7 per cent seen in 2008-09 amid the global financial crisis.
Input price inflation
Meanwhile, input price inflation in the Indian services sector accelerated to a strong rate amid reports of higher prices paid for energy, fuel and raw materials, which was passed on to clients, as output prices also rose sharply.
“The inflation readings for input and output prices accelerated again and remain high by historical standards,” Mr Eskesen said.
The survey further noted that Indian service providers were optimistic regarding the one-year business outlook in May. The degree of confidence was strong, and the most marked in 15 months driven by new business wins and better economic conditions.
Rate cut
“While the more backward-looking GDP numbers suggest rising growth risks and pressures on the RBI to cut rates, these numbers suggest the case may not necessarily be that clear-cut and, certainly, that there is no room for aggressive monetary policy easing over the near term,” he said.
However, the RBI Deputy Governor, Dr Subir Gokarn, had on Monday said below-trend growth and falling crude prices offer the central bank a window to ease monetary policy.
The Reserve Bank is scheduled to announce the mid-quarter credit policy on June 18.
Manufacturing PMI
Meanwhile, the HSBC India Manufacturing Purchasing Managers’ Index (PMI) — a measure of factory production — slipped slightly to 54.8 in May from 54.9 in April.
Consequently, the HSBC Composite Output Index (covering manufacturing and services) jumped to 55.3 in May from 53.8 in April.
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