Buoyant demand increases India's service activity to a maximum of five months in December

BENGALURU: Activity in the dominant Indian Industrial service In December it accelerated to a maximum of five months as demand increased at the fastest pace in more than three years, a survey of private companies showed on Monday.

The findings are likely to provide some relief to the markets and stimulate the hope of an economic recovery in the third largest economy in Asia, which registered its weakest growth since 2013 in the quarter from July to September.

The Nikkei/IHS Markit service purchase manager index rose to 53.3 in December from November 52.7, staying above the 50 mark that separates the contraction growth for the second consecutive month.

It is encouraging to see that India's service sector continues to recover from the moderate returns observed in September and October, said Pollyanna De Lima, principal economist at IHS Markit, in a statement.

More importantly, news about sustained job creation, robust growth of new orders and a rebound in business confidence suggest that the expansion can be maintained in early 2020.

A sub-index that tracks new businesses has reached its highest level since October 2016, encouraging companies to increase the workforce. Service providers were more optimistic about growth in the next year and international demand continued to increase.

A solid services sector is crucial in India, as it provides more than 60% of gross domestic product. If the momentum can be maintained, it would drive a faster economic recovery.

A sister survey on Friday showed that factory activity accelerated at the fastest pace in seven months in December due to strong demand and domestic production.

Taken together, they brought the composite PMI, which includes manufacturing and services, to 53.7 last month from November 52.7, the highest in five months.

With the weakness of the manufacturing sector that also faded in December, what was expected to be a disappointing performance of the private sector for the third quarter of the 2019-20 fiscal year now looks brighter, De Lima said.

However, prices charged by service companies increased at the fastest pace in almost two years after a more pronounced increase in the cost of inputs forced companies to transfer part of the inflationary pressure to consumers.

That suggests that general inflation could rise further and remain above the 4% medium-term target of the Reserve Bank of India, which gives little room for the central bank to lower interest rates again.