On eve of monetary policy meet, signs of recovery in services sector
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A few days after the announcement of dismal GDP (gross domestic product) numbers for the March quarter, there are signs of an upturn in the economy.
The Nikkei India Composite Output Index, a gauge of private sector activity in both manufacturing and services sectors, rebounded in May to 52.5 from 51.3 in April, thanks to improved performance by the services sector (see chart 1). The services Purchasing Managers’ Index (PMI) rose from 50.2 in April to 52.2 in May.
The disappointing GDP data had provided ammunition to those arguing in favour of a rate cut by the Reserve Bank of India, or at least a less hawkish policy.
Signs that the economy, particularly the services sector, is on the mend may complicate the central bank’s policy decision, making it difficult for it to ease further, in spite of low inflation.
The good news from the May services PMI data, however, is the rebound in employment, albeit a modest one (chart 2). As the survey noted, “Employment was up for the third straight month, and the rate of growth accelerated to the quickest in almost four years. Job creation was registered in the Post & Telecommunications, Financial Intermediation and ‘Other Services’ segments’.”