Services sector expanded rapidly in February at the fastest growth rate in eight months, driven by significant rise in new business orders even as jobs fell marginally in the sector, an HSBC survey said on Wednesday.
The HSBC India Services Business Activity Index, which tracks changes in activity at Indian services companies on a monthly basis, rose to an eight-month high of 53.9 in February, as against 52.4 in the previous month, indicating a robust expansion across the sector.
A score above 50 indicates that the sector is expanding, while a figure below that level means contraction.
Strong new business growth was the primary factor cited by survey respondents for the increase in activity.
"Boosted by a solid rise in new work, services sector output in India expanded at a robust rate in February that was the strongest since mid-2014", Markit Economist Pollyanna De Lima said.
Nonetheless, the latest improvement in economic prospects across the sector is yet to feed through to the labour market, as employment scenario did not improve much during the month.
Amid reports of shortages of skilled workers, services employment was broadly unchanged from the levels registered in the previous month, the survey said.
On prices, HSBC said that the input cost inflation across the Indian service economy moderated during February.
The rate of increase was only slight, while the output prices increased for the third successive month albeit at a softer pace than that seen in January. Reflecting lower fuel prices, overall costs faced by services firms rose at a softer rate.
"However, with demand gaining strength, the Reserve Bank of India (RBI) is likely to remain cautious when deciding on interest rates", Lima said.
However, RBI in early morning slashed key policy (repo) rate by 0.25 per cent to 7.5 per cent, the second such surprise rate cut outside regular policy review in less than two months encouraged by softening inflation and fiscal consolidation roadmap by the government.
Going forward, HSBC said, almost 26 per cent of those surveyed anticipate higher business activity over the course of the next year, which they commonly linked to improved market conditions, low inflation rates, increased marketing and favourable exchange rates.