Indian Services Activity Expands at Sharper Pace in August

Steven Bobson, Europe & Americas Editor
September 09, 2012 /

The HSBC India Composite Output Index posted 54.3 in August, broadly unchanged from the July reading and pointing to a further improvement in the Indian private sector activity.

The rate of increase was marked, and the slowest in four months.

Leif Eskesen, Chief Economist for India & ASEAN at HSBC said: β€œThe service sector continues to demonstrate resilience with activity picking up pace in August. Moreover, growth in new orders and employment are also on the rise.

“Encouragingly inflation readings eased again, but higher wage costs and solid demand are keeping
inflation pressures firm. With inflation risks still lingering, partly on the back of deficient monsoons, and policy inaction from Delhi persisting, the RBI has little room and appetite for rate cuts.”

After adjusting for seasonal factors, the headline HSBC Services Business Activity Index – which is based on a single question asking respondents to report on the actual change in business activity at their companies
compared to one month ago – posted 55.0 in August, up from 54.2 in July. Meanwhile, manufacturing companies signalled a solid increase in production, but the slowest since November 2011 as short supply of power negatively affected production.

Private sector companies in India signalled a further rise in new orders during August. The pace of increase was marked and the same as that recorded in July. The volume of new total business expanded faster at service providers as power shortages continued to impact negatively on manufacturers, it was reported.

Staffing levels were increased in the Indian private sector in August. The pace of expansion was modest at
services firms, but job creation at manufacturers was the fastest in the series history.

Backlogs of work in the Indian private sector increased for the first in three months during August. That said, the rate of expansion was only modest. Panellists in the service sector stated that outstanding business was accumulated in line with stronger sales growth and manufacturers linked the latest increase to persistent powercuts.

Input cost inflation persisted in the Indian private sector in August. Although steep, the rate of increase eased to the slowest since June 2010 and was below its long-run average. Whereas the rate of inflation at service providers was solid, in the manufacturing sector it remained sharp.

Furthermore, output prices increased during August, extending the current inflationary period to 39 months.
That said, the rate of increase was the slowest since March. Manufacturing and service companies both signalled higher charges with the rate of inflation faster in the manufacturing sector. Optimism was signalled in the Indian service sector amid reports of planned increase in marketing.


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