Services PMI in February jumps to 7-year high of 57.5

India’s services sector demonstrated a solid performance in February, the result of a private survey indicated on Wednesday. The services sector accounts for over 57 per cent in India’s gross domestic product (GDP).

The result of the survey is known as the Purchasing Managers’ Index (PMI). It recorded 57.5 in February, indicating the quickest expansion since January 2013. PMI in January was 55.5. This index plays a major role in policy making. PMI is prepared on the basis of responses from 400 managers working with different types of services companies. The index is prepared by IHS Markit. A showing above 50 indicates expansion, while that below 50 points to contraction.

Commenting on the latest survey results, Pollyanna de Lima, Principal Economist at IHS Markit, said that growth in India's services sector accelerated further halfway through the final quarter of fiscal year 2019-20, with the trend for business activity improving month after month since September last when the sharpest contraction for 19 months was recorded. According to her, the resilience in the trend for business activity is thanks to healthy demand for services from both domestic and international markets. The data also showed that service providers experienced a marked improvement in workforce productivity, with the sharp rise in business activity happening despite a softer and only modest increase in employment.

“Positive gains in new work across the manufacturing and service sectors suggest that private sector output will likely increase markedly again in March, boding well for final quarter GDP following expectations of a flat growth rate in Q3 FY 2019/20,” she said. This optimism has come days after GDP growth rate data showed that the economy grew at slower pace of 4.7 per cent during the October-December quarter. India’s GDP growth rate for 2019-20 is projected at 5 per cent.

The report said that those companies which reported higher business activity commented on strengthening demand, supportive economic conditions and accommodative public policies. Service providers enjoyed a marked increase in new work intakes during February, the second-fastest in over seven years. In some cases, the uptick in sales was linked to successful advertising.

As was the case for business activity, the rise in new orders was widespread across the five monitored categories and led by Consumer Services. A return to growth of new orders from abroad contributed to the increase in total sales. It also mentioned that the pace of expansion in international demand for Indian services was moderate, but above its long-run average. Projects in the pipeline, supportive market conditions, marketing efforts and the offering of new services all contributed to a stronger degree of optimism among firms.

According to the report, the rate of job creation was modest and the slowest in three months. Some companies reportedly left workforce numbers unchanged amid sufficient staff to cope with current requirements. Employment rose in four out of the five tracked sub-sectors, the sole exception being Finance & Insurance. Growth was led by Consumer Services. Input prices in the services economy increased amid reports of higher food, labour, material and oil costs. Although marked, the rate of inflation softened from January. Anecdotal evidence suggested that lower prices for onions and fuel helped curtail inflation.

Composite output

February data showed that robust increases in both manufacturing and services output pushed growth of private sector business activity to an eight-year high. The composite PMI Output Index was up at 57.6 in February from 56.3 in January, remaining above its long-run average of 54.6.

Growth of aggregate new orders held close to January’s seven-year high. Robust increases were noted among goods producers and service providers, with the sharper rate of expansion among the former.

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