India's service sector growth at 5-month high on new orders

New Delhi: The services sector grew at its fastest pace in five months in March on surge in business orders and softer inflationary pressure, recovering for the second straight month from a demonetisation-triggered slump, a monthly survey showed on Thursday.

The Nikkei India Services Purchasing Managers' Index (PMI), which tracks services sector output on a monthly basis, rose from 50.3 in February to 51.5 in March. A reading of 50 separates growth from contraction and the index has reached its highest level since October.

"India's private sector economy stayed on an upward trajectory during March, benefiting from an upswing in demand and output. The country's rapid recovery from the demonetisation-related downturn was accompanied by job creation and softer inflationary pressures," said Pollyanna De Lima, economist at IHS Markit and author of the report.

After three months of demonetisation-driven contraction from November to January, services sector had returned to growth in February.

The improvement in business conditions also promoted job creation, while confidence towards the year-ahead outlook for activity was at a four-month high during March.

The seasonally adjusted Nikkei India Composite PMI Output Index -- which tracks manufacturing as well as services sector -- increased to 52.3 in March from 50.7 in February, signalling a quicker rise in private sector activity across the country.

Going ahead, services sector companies indicated that activity is expected to rise further in the next 12 months.

On the prices front, input costs for services firms rose in March and some companies raised their own selling prices in that month, but the overall rate of inflation was "slight".

"By historical standards, the increases in new work and activity remain relatively mild, though growth is likely to gather speed as we head into the new financial year. This is shown by firms' willingness to hire additional employees and reinforced by stronger confidence towards the 12-month outlook for output," Lima said.

The data came hours before the RBI's bi-monthly monetary policy review -- the first for the current fiscal.

In its last review, the Reserve Bank on February 8 had kept the key interest rate unchanged at 6.25 percent on want for more clarity on the inflation trend and on impact of demonetisation on growth.