December 2019: IHS Markit India Services Business Activity Index at 5-month high

India’s service sector activity expanded to a five-month high in December on the back of a sharp jump in new business growth, raising hopes of sustained economic recovery.

The IHS Markit India Services Business Activity Index stood at 53.3 in December, up from 52.7 in November. This is the second-strongest rate of increase in output in more than a year behind 53.8 in July.

A reading below 50 on the index shows contraction while above that threshold indicates expansion.

“Survey members linked the rise to better market conditions and new business growth,” IHS Markit said in a report.

New business growth hit a 38-month high, growing at the quickest pace since October 2016, while total sales expanded for the third consecutive month in December, the survey showed.

Among sectors, transport and storage firms recorded the fastest increase in selling charges in December.

Consumer services posted by far the strongest increases in new business and output last month. But it also registered the steepest rise in input costs.

Input costs increased in December, with firms citing higher charges for food, fuel, medical products and transport.

Overall rate of inflation was sharp and the fastest in just under seven years, according to the survey report. Consequently, selling prices were increased, taking the current run of inflation to 35 months.

Amid reports of new business growth, service providers continued to hire extra staff in December. Employment increased for the twenty-eighth month in succession and at a rate that, although modest, was the quickest since August.

Indian services companies expect marketing efforts and favourable economic conditions to boost business activity during 2020.

Despite rising to a four-month high, the overall level of positive sentiment, however, remained below its long-run average.

A sister survey last week had showed manufacturing activity in December expanded to the highest level in the seven months.

Put together, Indian private sector activity rose for the second month running in December and at the quickest pace since July.

The Composite PMI (Purchasing Managers’ Index) Output Index stood at 53.7 in December against 52.7 in November, reflecting stronger rates of expansion in both the manufacturing and service sectors.

The statistics office will release the first advance estimates of economic growth for 2019-20 on Tuesday.

Private sector jobs expanded for the twenty-ninth month in a row last month and to the greatest extent since August. The rise was broad-based across the manufacturing and service categories.

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