The services sector contributes most to the Indian economy. If this sector is growing at a healthy pace this translates into good economic growth for the country. And the services sector is posting positive growth continuously for the last few months. The seasonally adjusted Nikkei India Services Business Activity Index rose from 52.6 in June to 54.2 in July, as new business rose at the fastest pace since June 2017. This is the fastest growth since October 2016, said the survey report. “July data was encouraging as the services sector observed the best performance since October 2016, underpinned by the strongest gain in new orders since June 2017,” said Aashna Dodhia, an economist at IHS Markit, and author of the report.
The index is prepared on the basis of a survey conducted among purchasing managers of over 400 private companies. These companies belong to five sectors namely Consumer Services, Transport & Storage, Information & Communication, Financial & Insurance and Real Estate & Business Services. An index over 50 shows expansion and if it goes below 50, it indicates contraction. “Marked expansions in both the manufacturing and services sector, with stronger growth in the latter, powered the fastest improvement in overall operating conditions in the economy since October 2016. However, there are some warning signs reflected by PMI price data. Although overall input cost inflation softened from June’s near four-year high, service companies faced the fastest rise in input costs since March amid reports of high oil prices.” Ms. Dodhia said on prices, inflationary pressures remained marked during July.
The Indian economy is performing above expectations despite unfavorable environments across the world. The global turmoil due to trade cum currency war and rising fuel prices is expected to hurt emerging Asian economies. The economic growth in countries like China, Malaysia, and South Korea is slowing down and capital flight is taking place. The capital-rich western investors are pulling money out of export-dependent Asian markets due to protectionist measures being taken in their home country which is expected to hurt these economies. In the tide across Asia, one country which stands firm and is the fastest growing major economy in the world is India. The service sector and industrial sector together comprise more than 80 percent of the Indian economy so if these two sectors are bullish then the overall business activity and economic growth will show up bullish stance. Although the overall output price is growing due to rising oil prices but the producers have no problem in passing those prices to consumers. The rationalization of GST rates on many products has sent the overall prices to a lower level despite the growing output prices.
The consumer activity is continuously upwardly mobile after the demonetization shocks eroded. This is very important for the economic growth of the country because domestic consumption is responsible for more than two third of Indian GDP. The Foreign Direct Investment (FDI) has grown after a dip in March. The reason behind this is probably the capital flight from other Asian economies like China which are no longer seen as safe investment destinations due to trade and currency conflicts. So overall, the economic outlook of the country seems positive. The business activity is going upward due to structural economic reforms like GST, Insolvency and Bankruptcy Code which solved the indirect tax problem and bad loans problem respectively. So as the Modi government goes seeking reelection in less than a year, the healthy performance of the economy will be a great fillip for them.