Activity in India’s services sector accelerated sharply in March following a strong increase in demand, although employment growth remained sluggish, a business survey showed on Wednesday.
The Nikkei/Market Services Purchasing Managers’ Index jumped to 54.3 in March from February’s 51.4, matching January’s 19-month high.
“March PMI surveys signalled a reassuringly robust end to the financial year for the Indian economy, with sharper increases in new business spurring activity growth in both the manufacturing and service sectors,” said Pollyanna De Lima, economist at Markit.
A sister survey on Monday showed manufacturing activity expanded at the fastest pace in eight months.
New business expanded for the ninth consecutive month and the sub-index, an indicator of domestic and foreign demand, reached its highest level since June 2014.
However, despite the improvement in new orders, firms have barely added any jobs in the last two years, with March once again seeing only a fractional improvement.
“With the sole exception of the mild increase in hiring seen among service providers last July, the two surveys collectively have signalled a broadly stagnant labour market for the past two years,” said De Lima.
Along with the weak pace of new job creation, what is likely to caution policymakers is the possibility that inflation could rise further in coming months, limiting the central bank’s ability to maintain accommodative monetary policy.
Firms reported a rise in both input and output prices, with prices charged at their highest level since May of last year.
Consumer inflation cooled to 5.18 percent in February and, coupled with the government’s adherence to fiscal consolidation in its budget, prompted the Reserve Bank of India to cut its benchmark lending rate by 25 basis points to a more than five-year low of 6.50 percent on Tuesday.
Service providers were, however, optimistic about growth in the year ahead, with the business expectations sub-index reaching a nine-month high.