Services Sector Expands: March 2017

India's services sector expanded for a second straight month in March as the impact of demonetisation waned, helping create more jobs. The Nikkei IHS Markit Services Purchasing Managers' Index rose to 51.5 in March from 50.3 in February. A reading of over 50 on the index indicates expansion while that below the benchmark denotes contraction.

A sister survey showed manufacturing activity scaling a five-month high.

The seasonally adjusted Nikkei India Composite PMI Output Index that measures both services and manufacturing rose to 52.3 in March from 50.7 in February.

Underpinning the expansion in services activity was a back-to-back rise in new business inflows that allowed higher output.

Some services companies increased selling prices in March, suggesting inflation pressures.

India's retail inflation had risen to 3.65% in February after slowing to a five-year low of 5.17% in January, below the RBI's target of 4%. Inflation is expected to average around 4.5% in the first half and 5% in the second half of this fiscal, RBI said.

Similar to manufacturers who were more upbeat in March than in February, almost a quarter of services sector panellists signalled positive sentiment, with better marketing campaigns, strengthening demand conditions and hopes that the Goods & Services Tax bill will be favourable to businesses, the key factors supporting confidence. The improvement in business conditions promoted job creation, while confidence in activity in the year ahead was at a four-month high. Services companies indicated that activity is expected to expand in the next 12 months.

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