Economic Overview: Robust Services Growth and Forex Reserve Dips

In the face of pressure from across the world, India’s service industry is growing rapidly, but its foreign exchange reserves are declining.

At the onset of the first quarter, India’s economy showed a lot of strength, and the services sector grew impressively. The latest HSBC PMI data by S&P Global shows that the Composite PMI Output Index was at 61.5 in April. This evidence indicates it was one of the most intense expansions for about 14 years.

The HSBC India Services Business Activity Index seasonally adjusted slightly decreasing to 60.8 from 61.2 at the end of the last quarter. Nonetheless, since the index remained one of the highest growth rates since its initiation, it continued to be driven by strong domestic demand besides substantial new business intakes which were recorded. For this upsurge, favorable economic conditions and high demand were mentioned as vital by survey participants.

International Expansion and Employment Trends

The second-fastest increase in export business since the series started in September 2014 was noted by the service sector. It was a growth slightly lower compared to the growth experienced in March this year. Whereas the new orders recorded a higher increase than those exported, the total rise of new businesses was still considerable thus enhancing the performance of industries.

There were also positive signs of employment growth in the services sector, as many enterprises took on more staff to process rising volumes of work. These increases were however checked by wage inflation and surging food prices, which escalated costs. Based on this, the rate of pricing adjustments on goods that people need for their daily consumption purposes slowed down to levels below what was reported last month when it topped almost 7 years according to a Commerce Department report.

Manufacturing Sector’s Role

In terms of new business intakes, service providers were outperformed by manufacturers due to which the total sales growth was recorded at high levels since 2010. Although job creation slowed in all sectors, the manufacturing industry experienced a notable increase in staff numbers in April, but this was partly offset by less pronounced expansion in the services sector.

India’s Forex Reserves Experience a Dip -

Decline in Forex Reserves

India’s foreign reserves decreased by USD 2.41 billion in the week that ended April 26, and this marked the third week in a row when we saw such a decline, reported The Reserve Bank of India (RBI). Most of this downfall came from other countries’ monies; it reached USD 637.92 billion after falling less than USD 3 billion just seven days ago because its appearance diminished by 1.159 billion dollars up to 559.701 million USD while the rest remained constant at their former levels Former ones remained at the same levels.

Details on Reserve Components

Gold reserves also saw a significant decrease, falling by USD 1.275 billion to USD 55.533 billion during the same period. However, there was a slight increase in the special drawing rights (SDRs) and India’s reserve position with the International Monetary Fund (IMF), which rose by USD 15 million to USD 18.048 billion and USD 8 million to USD 4.639 billion, respectively.

India’s forex reserves movements and services sector performance show that India’s economic environment is dynamic with challenges and opportunities for growth among global and domestic economic pressures, at the same time.

Disclaimer: This post has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.