After contracting for three months in a row, the services sector bounced back to growth in February as businesses recovered from the demonetisation-related disruptions seen in each of the previous three months. The seasonally adjusted Nikkei Services Business Activity Index rose back above the 50.0 no-change mark in February, posting 50.3 from 48.7 in January. The seasonally adjusted Nikkei India Composite PMI Output Index too climbed to 50.7 from 49.4 in January to signal the first increase in private sector activity across India since last October.
As per the survey report, incoming new business also picked up in February. However, as was the case for output, the pace of growth in new work was marginal overall. The report noted that the turnaround in business activity and inflows of new work came from the Financial Intermediation and Other Services categories, with further declines seen elsewhere. Nonetheless, rates of contraction softened in all cases.
On the prices front, the survey stated that input prices facing services companies in India rose at the second-fastest pace in the current six-month sequence of inflation during February and higher cost burdens were also recorded in the manufacturing industry, where the rate of inflation climbed to a two-and-a-half year peak. Besides, freight and raw material costs increased over the month. The survey further said that Services firms sought to pass rising costs on to customers by way of raising their own selling prices. The increase in output charges was the first in five months and the most pronounced since mid-2016. Meanwhile, factory gate prices rose at the sharpest rate in almost three-and-a-half years.