Services PMI Adds to Signs India Rebounding From Cash Clampdown

  • Sector grows amid rising demand for new work, price increases
  • Index in expansion territory after contracting for 3 months

A private survey signaled the first expansion in four months for India’s key service sector, adding to signs the economy is bouncing back from Prime Minister Narendra Modi’s shock clampdown on cash late last year.

The Nikkei India Services Purchasing Managers’ Index inched up to 50.3 in February, a report showed Friday, from 48.7 in January and November’s 46.7, which was the lowest since December 2013. A number above 50 indicates growth.

"Anecdotal evidence from survey participants suggested that, after being hampered by shortages of cash in the economy, demand for services in India improved," the report said.

Services contribute about 60 percent to India’s $2 trillion economy, pulling the composite PMI to 50.7 in February from 49.4 in January. A survey on the manufacturing sector published this week also showed expansion, though it is unclear if it’s enough to support the government’s 7.1 percent growth estimate for the year through March.

Read: India GDP to Slow Less Than Estimated As Cash Returns to Economy

GDP grew 7 percent in October-December, data showed Tuesday, a slight slowing from the previous year’s 7.3 percent but far stronger than the median 6.1 percent estimate in a Bloomberg survey of economists. While this early data doesn’t capture the note ban’s impact on small companies and unorganized workers, policy makers and analysts had predicted a slump followed by a sharp recovery.

The February services PMI data showed:

  • Input inflation rose to a five-month high and service providers raised charges
  • Year-ahead outlook for services activity remains "subdued"
  • Turnaround in business activity and inflows of new work came mainly from the financial services and ‘other services’ categories
  • Backlogs of work at Indian services firms rose for the ninth successive month in February. The rate of accumulation was the fastest since October 2016
  • Employment has shown only one noteworthy monthly increase in the past one-and-a-half years (November 2015), though the rate of job losses in February was relatively small
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