January sees fastest services growth in 18 months

Activity in India's services sector increased at its fastest pace in over a year and a half in January as demand accelerated, allowing firms to build up a much bigger backlog of orders, a business survey showed today.

The Nikkei/Markit Services Purchasing Managers' Index rose to 54.3 in January from 53.6 in December, the seventh straight month above the 50-level that distinguishes growth from contraction.

January also marked the seventh consecutive month of expansion in new business, with that sub-index rising to an 11-month high of 54.1 from 53.8. Respondents cited better weather and stronger underlying demand as the main drivers.

"A strong upturn in new business is an especially positive note from January's survey, which underpins hopes for further growth of activity across the country's private sector in the near-term," said Pollyanna De Lima, economist at Markit.

With firms building up a backlog of work at the fastest rate since late 2014, the business expectations sub-index rose to a six-month high.

Prices charged to customers and input costs rose, albeit at a slower pace. Indian inflation rose further above the central bank's 5 per cent mid-term target, reaching 5.61 per cent in December.

The Reserve Bank of India chose to hold its key benchmark rate at 6.75 per cent on Tuesday. Economists polled by Reuters expect only one rate cut this year in the face of inflationary pressures.

RBI Governor Raghuram Rajan highlighted the need for further fiscal consolidation and the importance of sticking to current inflation targets to maintain economic stability.

India's manufacturing activity unexpectedly returned to growth in January as domestic and foreign demand rebounded, according to a similar survey published earlier this week.

Asia's third-largest economy is expected to grow at a steady rate and outpace China over the coming year, despite continued global turmoil.

Economic growth data for the quarter ending December is due early next week.