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BW Businessworld

Services Sector Expands

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India's services sector grew at its fastest pace in six months during January as new business swelled, extending the previous couple of months' positive trend into the new calendar year, a survey showed.


The HSBC Business Activity Index, compiled by Markit and based on a survey of around 400 firms, bounced to 58.0 in January from 54.2 in December.


That was the third month the index has been above the 50-mark separating growth from contraction.


"Activity in the services sector rebounded in January at the fastest pace since July 2011 led by the financial intermediation and hotels and restaurant sub-sectors, and new business also flowed in at a faster pace," said Leif Eskesen, economist at HSBC.


Improving global market conditions contributed to accelerated demand and led to a rise in the pace of new orders flowing into the services sector, the survey showed.


The new business sub-index surged to 58.2 in January from 55.7 in December.


India's services sector should benefit further from expectations for improving global growth and abundant liquidity from loose central bank policies, which led to a slight uptick in sentiment among investors earlier this year.


January's jump in new orders pushed expectations for the future to their highest level since June 2011.


Despite the sustained struggle in Europe to avoid messy fallout from its debt crisis, the global manufacturing sector expanded at a slightly faster pace in January.


India's factory output recorded its biggest monthly rise last month, resulting in the fastest growth in eight months for the manufacturing sector, a sister survey showed on Wednesday.


However, growth forecasts for the Indian economy in the fiscal year to March have been reduced from 7.6 per cent to 7 per cent, a Reuters poll in January showed.


While input prices in India's services sector rose at their slowest pace since October last month firms increased their prices charged at a faster rate.


Wholesale inflation, which has remained stubbornly high in India, slowed to a two-year low in December as food price pressures decreased substantially.


India's central bank, the Reserve Bank of India (RBI), which hinted at policy easing last month after nearly two years of successive hikes, has also shifted its focus to reviving growth instead of battling inflation.


The RBI left interest rates on hold at its last meeting but cut the cash reserve ratio (CRR) by 50 basis points.


The cut in the CRR, which is the share of deposits that banks are mandated to hold as cash with the central bank, resulted in the release of Rs 32000 crore into the banking system.