India's services sector growth touches 3-month high in July

New Delhi: India's services sector activity witnessed a significant uptrend and touched a three-month high in July, backed by strong business inflows as underlying demand conditions remained firm, according to a monthly survey.

The Nikkei India Services Business Activity Index, which tracks changes in activity at service companies on a monthly basis, increased to 51.9 in July, up from 50.3 in June.

"The Indian service economy started the second semester on a solid footing, posting its strongest performance since April and thereby indicating that underlying demand conditions remained reasonably firm," Pollyanna De Lima, economist at Markit, which compiles the survey, said.

With growth of manufacturing production also quickening, the seasonally adjusted Nikkei India Composite PMI Output Index also climbed to a three-month high of 52. 4 in July as against 51.1 in June.

A reading above 50 means the sector is expanding while a reading below 50 means contraction.

Lima further noted that growth remains below-par compared with the long-run survey trend and, although expansion has been sustained for 13 consecutive months, the sector has so far failed to generate jobs.

Employment was broadly unchanged in both the manufacturing and service sectors during July, as indicated by the respective indices recording only fractionally above the crucial 50.0 threshold.

It has now been over two-and-a-half years since the private sector has seen meaningful job creation.

Regarding inflation, Lima noted that "service providers signalled declining price pressures, with output charges being cut in line with an overall decrease in input costs."

Experts believe subdued inflationary pressures may prompt the Reserve Bank to cut key policy rates in the upcoming meet on August 9.

In its policy review meet in June, RBI Governor Raghuram Rajan kept interest rates intact, citing rising inflationary pressure, but hinted at a reduction later this year if good monsoon helps ease inflation.

The industry is still hopeful of further rate reduction from the apex bank to boost investment.