February service activity expanded at fastest pace in 12 years

The index was above the 50-mark separating growth from contraction for the 19th consecutive month. (file)

Bengaluru:

Activity in India’s key services sector grew at the fastest pace in 12 years in February on strong demand as price pressures eased further, a private business survey showed on Friday.

The strong report could fuel hopes for Asia’s third-largest economy, whose growth slowed to 4.4% in October-December from 6.3% in July-September as pent-up demand eased and weakness in the manufacturing industry continued.

The S&P Global India Services Purchasing Managers’ Index rose to 59.4 in February from 57.2 in January, its highest since February 2011 and well above all forecasts in a Reuters poll that had predicted a decline to 56.2.

It was above the 50-mark separating growth from contraction for the 19th consecutive month, its longest extension since June 2013.

“The services sector lost growth momentum in January … as demand resilience and competitive pricing policies underpinned the joint-best growth in sales over the same period,” said Pollyanna De Lima, associate director of economics at S&P Global. “

Although new business grew at the fastest pace in eight months, firms posted modest increases in hiring and business confidence was at its lowest in seven months.

De Lima said, “It appears that a lack of confidence in the business environment has also affected hiring growth. The degree of optimism in February was lower than the historical trend as some companies were skeptical that demand would remain so resilient.”

“Others displayed concerns about fierce competition for new work.”

However, input costs rose at their slowest pace since September 2020, prompting firms to raise prices charged at the weakest rate in a year.

If this trend continues, overall inflation, which shot up to 6.52% in January, may ease in the coming months and provide some breathing space for the Reserve Bank of India.

According to a Reuters poll last week, the RBI is expected to raise its repo rate to 6.75% in April from 6.50% at present.

Strong growth in services activity lifted the composite index to 59.0 in February from 57.5 in January, while manufacturing growth slowed to a four-month low.

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