Another positive development in July included the continuation of subdued input cost inflation. This led to only a marginal increase in output prices over the month. Nikkei India Services Business Activity Index rose 53.8 in July vs. 49.6 in June, the IHS Markit India Services Business Activity Index pointed to the quickest increase in output in one year. Four of the five monitored subsectors posted expansion, the sole exception being Real Estate & Business Services.
Indian service providers signalled that their subdued business performance at the end of the first quarter of fiscal year 2019/2020 dissipated in July, with activity returning to growth and new work intakes rising at the fastest rate in just under three years. Moreover, job creation picked up to the strongest since early-2011 in response to strengthening demand conditions and upbeat predictions for the economic outlook.
The Indian private sector economy benefited from stronger manufacturing and services performances during July. Solid growth of business activity across both categories pushed the Composite PMI Output Index to an eight-month high of 53.9 (June: 50.8). Aggregate new orders increased to the greatest extent since last November, with rates of expansion picking up in the manufacturing and service sectors. Job creation across the combined manufacturing and service sectors hit a five-month high during July. Services companies posted a much stronger rate of expansion than their manufacturing counterparts.
Indeed, new export work rose for the fifth straight month in July. Moreover, the pace of growth was marked and the fastest since this measure was introduced to the survey in September 2014.
Additional pressure on operating capacity and positive growth projections contributed to a stronger expansion in employment. The latest rise in staffing levels was the quickest recorded for almost eight-and-a-half years. Finance & Insurance posted the fastest increase in jobs, while Real Estate & Business Services was the only category to register lower payroll numbers. Meanwhile, unfinished business across the Indian service sector increased at the slowest pace in 2019 so far. The rise was marginal and broadly in line with the long-run series average.
July data indicated an improvement in business optimism across the service economy, after sentiment had faded to a four-month low in June. According to survey participants, concerns about uncertain public policies had diminished. Companies also expect advertising efforts and strengthening market conditions to support growth in the coming 12-month period.
Commenting on the latest survey results, Pollyanna de Lima, Principal Economist at IHS Markit said, "India's service economy showed renewed vigour in July as businesses and households welcome the recent government budget announcement. PMI data indicated that the strongest upturn in new work for nearly three years led to a rebound in business activity. Encouragingly, service providers reported a widespread improvement in demand, from the public and private sectors as well as domestic and international markets. Growth of export orders hit a series peak. "These favourable results from the service sector were accompanied by improved momentum among goods producers, which combined showed the sharpest rise in output for eight months. The ground gained in services during July meant that the gap in the performance of the two monitored sectors was the narrowest in one year. India's labour market continues to go from strength-to-strength, with the pace of service sector job creation the highest in over eight years. Ongoing expansions in the employment base should support household spending and consumer confidence in the near-term.”
Source: IHS Markit India Services PMI