India services growth picks up pace in April as demand improves

Activity in India’s dominant service sector accelerated in April thanks to a pick up in new business that encouraged firms to hire at the fastest pace in seven years, a private survey showed on Friday.

Indications of solid services and manufacturing growth, supported by improved demand, suggest Asia’s third largest economy is motoring along nicely as it shrugs off disruptions caused by a goods and services tax (GST) and demonetisation.

The Nikkei/IHS Markit Services Purchasing Managers’ Index rose to a three-month high at 51.4 in April from March’s 50.3, holding above the 50-mark that separates growth from contraction for a second month.

“It was encouraging to see the Indian service economy report a positive start in the April quarter, with output growth gaining momentum as demand conditions improve,” Aashna Dodhia, an economist at IHS Markit, said in a statement accompanying the survey.

“India’s overall economy also saw price pressures moderating further, with input and output charge inflation registering at the slowest since September 2017 and June 2017 respectively.”

Inflation could therefore slow further from March’s five-month low and closer to the Reserve Bank of India’s medium-term target of 4.0 percent. That would allow the central bank to stay on hold until the second half of next year as expected

The survey showed strong domestic and foreign demand and drove the sub-index on new business to 51.4 from 50.6 in March.

A sister survey on Wednesday showed factory activity accelerated in April on strong domestic demand and output.

Taken together, they pushed the composite PMI, which includes both manufacturing and services, to 51.9 in April from March’s 50.8, its highest in three months.

“As the service economy contributes a greater proportion to real GDP, and continued to be outperformed by its manufacturing counterpart, overall private sector growth was only modest and below the historical trend,” Dodhia said.

Service providers remained optimistic about growth in the year ahead, although the expectations index slipped slightly from March’s reading.

The service sector plays a crucial role in India’s economy as it contributes about 60 percent to the country’s gross domestic product.

India regained its status as the world’s fastest growing major economy in the October-December quarter, surpassing China for the first time in a year, and is likely to retain that title this year and next.