It’s not just manufacturing that’s showing strong momentum. More importantly, the HSBC India Services Purchasing Managers’ Index, too, has bounced back in December. That’s more important because services account for the bulk of the Indian economy.
The headline Business Activity index was at a strong 57.4 in December, well above November’s reading of 55.2. (A reading above 50 indicates expansion.) The growth of new business, which was flat during the last few months, showed a rise in December and this should be reflected in higher levels of activity in the future. Even more heartening is the expansion in employment. The survey pointed out: “All but one of the monitored services sub-sectors took on additional personnel during the latest survey period. Hotels and restaurants continued to rationalize their workforces, although only slightly.” The expansion in activity has led to an increase in prices being charged, with the prices charged sub-index being at its highest level since September 2008. Of course, input price inflation was higher and input prices for services have now increased for the ninth straight month.
Interestingly, while business activity has clearly increased in the services sector, that has not been accompanied by a similar increase in business expectations. As a matter of fact, the Business Expectations component of the Services PMI (purchasing managers’ index), which shows the responses to the question, “In twelve months’ time, do you expect overall activity at your business unit to be higher, the same or lower than now?” actually worsened in December, although it continues to remain very positive. But a large proportion of companies said they expected activity to remain at around the same levels in twelve months’ time. The reasons are not difficult to understand: there are concerns over higher interest rates, over inflation and over the withdrawal of the stimulus.
Graphics: Yogesh Kumar / Mint
After the second quarter economic growth numbers were released results, the worry was whether the economy could continue to do well as the impact of the drought made itself felt and while the effect of the boost given to consumption by the Sixth Pay Commission arrears payments wore off. The sluggishness in the PMIs for both manufacturing and services for October and November seemed to indicate that the worries were real and the economy was slowly losing momentum. Those fears have been belied by December data. Nevertheless, it’s important not to lose perspective—the pace of expansion still has to get back to pre-Lehman levels. In September 2008 the Services PMI was at 61.2.