Services growth hits 10-month high in December

New Delhi: India's services sector activity touched a ten-month high in December driven by a significant rise in new business orders but the overall health of the economy remains fragile amid a weak manufacturing sector, a survey showed today.

The Nikkei Business Activity index climbed to a ten-month high of 53.6 in December from 50.1 in November, thanks to a solid rise in incoming new work. The growth of private sector output in December was largely driven by services sector as manufacturing production decreased for the first time since October 2013.

"The Indian private sector returned to expansion territory at the end of 2015, eking out modest output growth in December," said Pollyanna De Lima economist at Markit, which compiles the survey.

Meanwhile, the seasonally adjusted Nikkei India Composite PMI Output index, which maps both manufacturing and services sectors, rose to 51.6 in December from November's five-month low of 50.2. In the first contraction in over two years, manufacturing sector output dipped in December to a 28-month low as new orders fell sharply and production took a big hit from heavy rains in Chennai.

The survey noted that even as service providers sentiment improved in December, the degree of confidence was the second-weakest. Business sentiment was restricted by worries regarding the consequences of natural disasters, it added. "A stronger rise in new business and an improvement in year-ahead expectations at service providers are positive developments, but the overall health of the economy remains fragile amid a weak manufacturing sector," Lima added. Lima further said goods producers saw both order books and production dip for the first time in over two years.

Whereas manufacturers linked the slump to the Chennai floods, growth of new orders and output had been on a downward trend in recent months. Given a sharp deterioration in manufacturing output in China as well, the experts believe the global headwinds can make things even worse for the Indian markets, which will add to the pressures on RBI to keep rates low.

The central bank is scheduled to hold its next monetary policy review next month, although three out of four rate cuts last year were effected outside the planned reviews.