The ongoing recovery in the economy is finally leading to job growth, at least in the corporate sector. The employment sub-index of the Nikkei India Services Purchasing Managers’ Index (PMI) for March 2018 reached its highest level since June 2011 (see chart).

A reading above 50 indicates economic expansion from the previous month, while one below 50 points to contraction.

The employment sub-index in PMI Services had started moving up since September 2017, probably as the initial disruption caused by the introduction of the goods and services tax (GST) dissipated. As demand conditions improved, business sentiment among service providers surged to the strongest since July last year when GST was implemented. That also translated into increased hiring by service providers.

In the manufacturing sector, on the other hand, the employment sub-index indicates contraction in March 2018 from the previous month. However, this contraction was after several months in which manufacturing employment showed modest expansion, as the chart shows.

Indeed, the chart indicates that throughout 2011-2018, expansion in the employment index has been limited, a sign that the organized sector hasn’t really created enough jobs.

Note that PMIs reflect conditions in the corporate sector so they may not capture trends in the informal economy. Analysts have been saying that firms in the formal sector are expected to gain market share as a result of demonetization and GST and it’s possible that this too could have led to more hiring by companies. “In response to efforts undertaken by the Indian government to formalise the economy, more people are gravitating towards employment as signalled by the latest PMI data," said Aashna Dodhia, economist at IHS Markit.

The Nikkei India Composite Output Index, a gauge of conditions in both the manufacturing and services private sector, improved from 49.7 in February to 50.8 in March. Services sector activity picked up, while momentum in manufacturing declined.

While the pace of job creation was the quickest in seven years, the survey also pointed out that enhanced marketing initiatives and, in some instances, discounts were reported to have underpinned new client wins. It remains to be seen if this trend in employment generation is sustainable.

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