India services growth slows slightly in May

BANGALORE, INDIA: Business activity among Indian services firms expanded for the 13th consecutive month in May, but at a slower pace than in April, as growth in business expectations and prices charged ebbed, a survey showed.

The HSBC Markit Business Activity Index, based on a survey of 400 firms, fell to 58.2 in May from a 21-month high of 62.1 last month. A reading above 50 indicates expansion.

The survey found that post and telecommunications firms recorded the fastest rise among the six sub-sectors reviewed.

In May the telecom industry saw an auction of third-generation (3G) spectrum, which raised 677 billion rupees ($14.4 billion) for the government, from mobile carriers including Bharti Airtel and Reliance Communications.

While growth in the services sector receded somewhat from last month's impressive levels, the employment index rose to 53.2, its highest since August 2008.

"India's economy continues to expand at a brisk pace. As a result, employment growth remains robust, helping to sustain consumer spending in the coming months," said Frederic Neumann, co-head of Asian Economics Research at HSBC.

Business expectations, too, remained at high levels. However, May saw a drop of almost three points as positive sentiment was less widespread, with more service firms reporting no change to their outlook.

The input price index fell marginally in May from April's 20-month high.

However, firms struggled to pass on the costs, with the prices charged index falling significantly from April, although holding firmly above 50.

"The easing of output and input price pressures, meanwhile, will provide some relief to the central bank that has set its sight firmly on rising inflation," Neumann said.

The Reserve Bank of India, which had described the inflationary situation as "worrisome", said on Tuesday that inflation remained higher than its comfort level, signaling that it could raise interest rates further.

More evidence is required on falling price pressures before policy makers can let their guard down entirely, Neumann added.