Services PMI dips but expansion stays strong

Services PMI dips but expansion stays strong

Bangalore: Growth in India’s service sector slowed in March from February’s blistering seven-month high as new business growth moderated slightly, while price pressures, particularly wages, continued to rise, a survey showed on Tuesday.

The seasonally adjusted HSBC Markit Business Activity index, based on a survey of over 450 companies, slipped to 58.8 in March from February’s 60.2, but remained above the 50 mark that denotes expansion for the 23rd consecutive month.

“Growth momentum in the services sector remains strong, although it eased a bit in March," said Leif Eskesen, chief economist for India & Asean at HSBC.

The services sector contributes more than 55% of India’s gross domestic product.

The new business index dropped to 58.4 in March, from February’s 59.6, with business expectations easing a bit but still robust.

The input price index rose in March, driven by booming wage costs which are helping to fuel inflationary pressures in the broader economy, the survey showed.

High food prices have kept India’s headline inflation high over the past year, and a spike in global crude oil prices above $100 a barrel run the risk of stoking price pressures.

“Inflation remains the dominant concern, not growth, calling for Reserve Bank of India to continue the tightening cycle," Eskesen said.

The RBI hiked key interest rates by 25 basis points for the eighth time in a year on March 17 to try and reign in inflation, which has stayed stubbornly over the central bank’s comfort level of 5-6%.

The central bank is expected to raise key rates by 25 basis points at its next review on 3 May.

India’s manufacturing sector continued to expand at a steady pace in March, supported by sustained new orders and output, while input prices were at their highest in at least six years, signalling further inflationary pressures, a survey showed on Friday.