Services sector expands for third straight month

New Delhi: Services activity expanded for the third month in a row in July, easing from a 17-month high in June, as a recovery continued in the sector that contributes 60 per cent to the Indian economy.

The economy seems to be on a revival path since the Narendra Modi-led government took over in the last week of May, with key indicators such as car sales, industrial production and exports looking up.

The HSBC Purchasing Managers Index (PMI) for services stood at 52.2 points in July, down from 54.4 in June, but above the 50-point mark that separates expansion from contraction. It was the third successive month of expansion after a 10 consecutive months of decline.

"Growth in the services sector softened in July after a big jump in the previous month. Nevertheless, the sector recorded its third consecutive month of expansion, following several months of subdued activity," said Frederic Neumann, Co-Head of Asian Economic Research at HSBC.

Of the six monitored sub-sectors, only hotels and restaurants and transport and storage companies registered reductions in activity. The Indian economy expanded 4.7 per cent in 2013-14, marginally up from the decade-low 4.5 per cent recorded in 2012-13, as manufacturing contracted 0.7 per cent. Services expanded 6.7 per cent in 2013-14 compared with 7 per cent in the previous financial year, according to data from the Central Statistical Office.

While new business in the service sector rose for the third month in a row in July, it slowed to 52.6 last month from 54.3 in June, according to the report, based on a survey of 350 private sector firms.

New orders across the private sector as a whole continued to rise at a robust pace as manufacturers reported the sharpest increase in new work intakes since February 2013.

"New business flows and business sentiment have moderated relative to the previous month, too," said Neumann. Manufacturing PMI, released on Friday, had shown a sharper rise in activity, touching a 17-month high of 53 from 51.5 in the month before, on account of a surge in new orders.

The report was cautious about rising inflation in the economy. The RBI maintained a status quo on rates in its monetary policy on Tuesday. "Meanwhile, final prices were marked up at a faster pace to reflect rising costs, underscoring the need for RBI to remain cautious about inflation."

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.