After manufacturing, services sector has also registered an expansion in the month of July. This was clearly reflected in Nikkei Purchasing Managers Index (PMI) which crossed the psychological mark of 50. However, the rate of expansion was marginal.

The index, prepared on the basis of the survey, recorded 50.8 after two months of sub 50 performance. It is calculated on the basis of response from the purchasing manager executives of 350 private sector companies across six services sector. Index above 50 means expansion and below 50 means contraction. The survey is compiled by Markit.

Commenting on the data, Andrew Harker, Senior Economist at Markit, said that while it was a welcome news to see a return to growth of activity in the Indian services sector during July, “we are still looking at a modest improvement at best''.

He also mentioned that the same could also be said for employment, which increased at the fastest pace for two years, but only slightly. Moreover, uncertainty around the future path of the economy has led confidence to slip to a record low. “Inflationary pressures remained muted during the month, with companies actually raising their output prices at a slower pace than in June, he said.

Services activity rose primarily in response to a renewed increase in new business, with panellists commenting on strengthening demand conditions. Although growing for the first time in three months, the expansion in new business was slight. The upturn in incoming new work led Indian service providers to take on additional workers in July.

Although slight, the rate of job creation was the quickest in two years. While contrasting with continued marginal job shedding in the manufacturing sector, the rise in services employment was enough to result in higher staffing levels overall.

Increased employment led services outstanding business to decline for the first time since February 2014. However, composite work-in-hand increased fractionally due to a faster accumulation at manufacturing firms, the survey said.

Since manufacturing PMI also recorded an increase, the composite PMI climbed to 52 in July from 49 in June. This signals a modest increase in activity. Growth has now been recorded in 14 of the past 15 months.

The return to expansion was helped by a first rise in services activity in three months and acceleration in the rate of manufacturing production growth. “When looking at the manufacturing and service sectors together, weak inflationary pressures and modest growth tend to support a more accommodative monetary policy environment,” Harker said.

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