Services PMI declines moderately in March

Growth in services, the largest sector of India's economy, moderated in March compared to the previous month's, widely-tracked HSBC purchasing managers' index (PMI). Even the employment generation rose in March, while February had seen stagnant jobs. 

Ahead of the Reserve Bank of India's (RBI) policy review on Tuesday, the PMI survey showed that inflation rose on both input and output sides, even though firms did not pass the entire higher input prices to consumers due to fierce competition. 

PMI declined from 53.9 points in February to 53 in March. However, it was above the January level of 52.4. However, if one takes a longer view of one year, it was only in February and June that PMI was higher than 53 points. As such, March saw moderation in services expansion compared to February, but it was not as low. 

Markit Economics, compiler of the PMI data, said activities expanded in March though at aslightly less rate than in February. Output rose in all the segments, except for financial intermediation and hotels and restaurants. 

March saw the level of new businesses placed with Indian services companies increase. Although solid, the rate of expansion  eased  since  the  prior  month.

Pollyanna De Lima, economist at Markit, said, "India’s service sector ended the first three months of 2015 with  a  strong performance,  providing  signals  that  much  of the  weakness  seen  in  2014 has  been left  behind.  Despite softening slightly  since  the  prior  month,  growth  of  activity and new business in the country’s dominant sector  was 

robust."

Earlier data had shown that manufacturing PMI had risen to 52.1 points in March from 51.2 in February. 

Combining both manufacturing and services, combined PMI for output fell marginally from 53.5 in February to in 53.2 in March.

Even after a moderation in growth, services sector firms hired additional hands. "This    was    an improvement    from    the   broadly unchanged    levels recorded   in   the   prior   month," Markit Economics said. 

Amid   sustained   new   business   growth   and   delayed payment from clients, unfinished business held by Indian service providers rose in March. Despite being moderate, the   pace  of  increase  quickened  since   the  previous month. 

Input prices faced by services firms rose further in March. The rate of  cost  inflation  was  solid  and  the  strongest 

since  June  2014.  Increased  petrol  and  transport  prices were  reported  by  panelists  to  have  contributed  to  the 

overall  rise  in  cost  burdens.  

Similarly, output charges   were   raised in   response   to   higher   costs. Nonetheless,  the  rate  of inflation on the output side was  only  slight  and much weaker than that seen for costs.

"Worryingly,  however,  cost  of  inflationary  pressures  in the private  sector  as  a  whole  firmed. Even as  output  prices   increased,  firms  still  strugged  to  pass  on  the  full extent    of    input    price    rise    to    clients    amid    fierce competition," De Lima said.