Services sector activity scaled an over three-and-a-half-year-peak in August as new work inflows saw a “marked improvement” and business confidence touched a 19-month high, the Nikkei PMI survey for services showed, reports fe Bureau in New Delhi. A sustained recovery in the services sector augurs well for the economy as GDP growth has already crawled to a six-quarter low of 7.1% in the first quarter of 2016-17. First-quarter GDP growth was aided hugely by an 18.8% jump in government final consumption expenditure. As such, the fiscal deficit had already hit 74% of the full-year target by July, constraining the government’s ability to spend in a big way to prop up the economy in coming quarters.
Even the marginal growth in the services sector at 8.8% in the first quarter of 2016-17 from 8.7% in the previous quarter was helped by government spending, as public administration, defence and other services rose an impressive 12.3%, compared with just 5.9% a year before. Given this scenario, the headline services PMI touching 54.7 in August, up from 51.9 in the previous month, aided by a broad-based recovery (output grew in five of the six monitored services categories, barring hotels and restaurants), indicates greater support for growth from private services in Q2.