CHENNAI: After showing contraction for three months in a row between November 2016 and January 2017, India’s services sector rebounded in February, according to a widely tracked monthly survey.
This is estimated to be on the back of recovery in demand, which had remained subdued in the aftermath of the Narendra Modi-led government’s decision to pull out high-value currency notes from circulation on November 8, 2016.
The survey, the Nikkei India Services Purchasing Managers Index (PMI), rose to 50.3 in February 2017 from 48.7 in the previous month. Economists consider this to be a positive because the services sector constitutes a dominating part of India’s economy.
The index is based on data compiled from monthly replies to questionnaires sent to purchasing executives in around 350 private service-sector companies.
The index had slipped to a three-year low of 46.7 in November 2016 following the note-ban decision. A reading above 50 reflects growth while one below that denotes contraction.
While the Reserve Bank of India is yet to release the figures as to how many of the banned notes have come back to the banking system, unofficial estimates say demonetisation must have sucked 85 per cent of cash out of circulation, pulling down consumption.
Survey participants, however, were less optimistic about the 12-month outlook. The muted sentiments were reflected in the payroll numbers as well as services companies continued to reduce staff count.
“It is still too early to state that expansion rates will climb to their trend levels in the near term. Companies remain reluctant to take on additional staff and confidence towards the 12-month outlook for output dipped to its second-lowest mark in over one year,” said Pollyanna De Lima, economist at IHS Markit, and also author of the PMI report.
Earlier this week, the government had released GDP data showing India’s economy grew seven per cent in October-December 2016 quarter. This was in sharp contrast to projections by economists and analysts, who had estimated the country’s economic growth to be under seven per cent as they felt demonetisation would have dented growth.
“So far, firms are doubtful about the sustainability of the economic recovery,” De Lima said, adding, “It is still too early to state that expansion rates will climb to their trend levels in the near term.”