March 6, 2024
The outlook for future business activity among services companies, while still positive, weakened slightly due to a slowdown in new orders and output
Among the surveyed firms, 26% anticipate growth in the coming year, while 2% foresee a decline, and employment numbers were reported to be adequate
Buoyant client demand, increased publicity, and improved customer relations were cited as factors contributing to optimism
Despite milder growth in new orders, international sales expanded significantly, marking the thirteenth consecutive month of growth
In February, the growth momentum of India’s service sector showed a slowdown but remained robust despite reduced new orders and output, as revealed by a private survey released on Tuesday. The seasonally adjusted HSBC India Services Business Activity Index dropped from 61.8 in the previous month to 60.6. An index reading above 50 signifies expansion, and although this decline was expected, a reading above 60 still indicates a sharp expansion rate.
Even with the dip, service activity in February was the second-highest in the last five months. However, the milder growth during the month cast uncertainty on the business outlook. Experts mentioned that due to a slowdown in new orders and output, services companies’ outlook for future business activity, while still positive, weakened slightly.
Among the 400 surveyed firms, 26% expect growth in the coming year, while 2% anticipate a decline. Employment also faced challenges, with survey respondents indicating adequate employment numbers.
Firms expressing optimism cited buoyant client demand, increased publicity, and improved customer relations. The finance and insurance sectors exhibited the strongest growth, while real estate and business services experienced the slowest increase in February.
Despite milder growth in new orders, international sales surged, expanding at one of the highest rates in nearly a decade. Firms reported gains from various regions, including Australia, Asia, Europe, the Americas, and the UAE. February marked the thirteenth consecutive month of expansion in new business from abroad. According to government estimates, India’s service exports were likely up 6% to US$ 284.5 billion in the first ten months of the fiscal year.
On the inflation front, there was positive news as input costs saw the second slowest rise in 42 months, leading to a decline in output prices. Experts state that prices charged for services rose at the slowest rate in 24 months as input price inflation moderated. Services inflation hit its lowest level of 3.3% in over four years in January and was expected to remain subdued in February, contributing to an overall inflation decline to 5.1%.
The stronger growth numbers suggest that the Reserve Bank of India has room to keep interest rates on hold for a more extended period than initially anticipated. Experts indicate that the central bank’s monetary policy committee will likely maintain the policy rate at 6.5% for the seventh consecutive time at its next meeting in April.
Source: Economic Times