India’s services sector expands while factory output shrinks
05 Jun 2013
In sharp contrast to India's manufacturing growth which stagnated in May, the services sector expanded at its fastest pace in three months as new orders started coming in, according to the results of an HSBC survey released today.
The HSBC/Markit purchasing managers index (PMI) for the services industry inched up to 53.6 in May, as against 50.7 in April. The services sector today accounts for around 60 per cent of the India's GDP.
"Service sector activity picked up pace in May led by firmer order flows. Moreover, companies were more optimistic about the domestic and global economic outlook," HSBC chief economist for India and ASEAN Leif Eskesen said.
The level of positive sentiment in services was at a five-month high, despite new taxation imposed on the sector.
On Monday, the same team led by Eskesen said India's manufacturing growth shrank for the first time in over four years, going by the PMI - a clear indication that any revival in the Indian economy will be led by services, which require little infrastructure, rather than manufacturing, which is bogged down by poor infrastructure and government control (read corruption). (See: Factory output growth comes to near standstill in May)
Companies in services expect that better global economic conditions combined with increased marketing efforts and the introduction of new services will lead to higher customer numbers.
The HSBC India Composite Output Index, which maps both services and manufacturing activity, posted 52 in May, up from 50.5 in April, thanks to growth in the services sector.
"The latest reading signalled the fastest increase in business activity since February, but a rate of growth that remained historically muted," HSBC said.
India's Economic growth rate slipped to a decade low of 5 per cent in 2012-13 on account of poor performance of farm, manufacturing and mining sectors.
Significantly, Eskesen further said that "notwithstanding the uptick in growth, inflation gauges eased further on the back of strong competition and moderating cost pressures. With growth still moderate and inflation softening, the probability of another RBI (Reserve Bank of India) rate cut has increased."
Overall employment growth across the Indian non-private sector was slight and unchanged from April. Slight rises were signalled in both the manufacturing and service sectors.
