Services sector returns to growth in Sept on stronger demand

New Delhi: Services sector activity in India expanded for the first time in three months in September as it rebounded from GST-related contractions, driven by a surge in new business orders that supported job creation, a monthly survey said today.

The Nikkei India Services PMI Business Activity Index rose to 50.7 in September -- from 47.5 in August -- a reading that pointed to a slight pace of expansion.

In PMI parlance, a print above 50 means expansion while a score below that denotes contraction.

The combination of marketing campaigns by companies and strengthening demand conditions led to new business growth in September, the survey found out.

The latest services PMI follows the manufacturing one announced on Tuesday which showed that industrial activity registered the second straight month of expansion in September.

Accordingly, the Nikkei India Composite PMI Output Index, which maps both manufacturing and services sectors, rose to 51.1 in September, from 49 in August.

"The Indian private sector regained some lost ground since the implementation of July's GST as service providers followed the manufacturing industry back to growth," said Aashna Dodhia, Economist at IHS Markit, and author of the report.

The improving economic environment supported job creation, with services employment increasing at the fastest rate in almost six-and-a-half years.

"The labour market was strengthened over the month as the pace of job creation quickened to the fastest since mid-2011, led by the transport and storage and consumer services sub- sectors," Dodhia said.

On the inflation front, input cost accelerated in September while output charges rose at the weakest rate since June.

The survey further noted that service providers remained optimistic towards growth prospects over the coming 12 months, but their confidence dropped to a three-month low at the end of the third quarter (July-September).

Dodhia, however, noted that the composite PMI for the July-September quarter indicated the lowest average since October-December 2013 "as the private sector transitions from recent structural shocks".

The Reserve Bank, in its policy review meet on October 4, kept benchmark interest rate unchanged on fears of rising inflation while lowering growth forecast to 6.7 per cent for the current fiscal.