The month of August saw a solid rebound in the rate of expansion in India’s service sector business activity. At 54.7 in August, up from 51.9 in July, the seasonally adjusted Nikkei India Services Business Activity Index – which is based on a single question asking respondents to report on the actual change in output at their companies compared with one month ago – posted its highest level for over three-and-a-half years. The headline index has now signalled expansion in each of the past 14 months. Output growth was broad-based by sector, with increases registered in the Financial Intermediation, Other Services, Post & Telecommunications, Renting & Business Activities and Transport & Storage categories. The only sector to report a decrease in activity was Hotels & Restaurants.
Output was raised in response to a marked improvement in new work inflows and increased levels of business confidence. The trend in employment remained comparatively subdued, however, with a slight decrease in jobs signalled for the first time since September of last year. Measured across the service economy, the level of incoming new work rose at the quickest pace for three-and-a-half years. Where an expansion was registered, companies mainly linked this to improved market conditions. Stronger growth of business activity and incoming new work led to a modest recovery in optimism at service providers. Over 27% of companies expect activity to increase over the coming year, compared to 1% that forecast lower output volumes.
Business confidence was linked to greater client interest and improved market conditions. Although the degree of positive sentiment rose to its highest since the start of 2015. The service sector employment declined slightly during August, the first job losses for 11 months. Decreases in staffing levels were signalled across the Financial Intermediation, Hotels & Restaurants, Post & Telecommunications, Renting & Business Activities and Transport & Storage sectors. However, rates of job shedding were negligible in all of these categories.
Price pressures remained subdued in August. Average costs declined marginally for the second successive month, which firms attributed to lower diesel, fuel and vegetable prices. Meanwhile, average service charges ticked higher, following a slight decrease in the prior survey month.