Activity in the India's services industry soared at its fastest pace in four months in October, driven by surging demand, despite the ongoing confusions spurred by the implementation of the Goods and Services Tax (GST) regime.
A private survey on Friday showed that the Nikkei/IHS Markit Services Purchasing Managers' Index (PMI) rose to 51.7 last month — its highest since June — from 50.7 in September, Reuters reported. The 50 mark distinguishes growth from contraction.
The PMI entered the contraction zone soon after the implementation of the new tax system rolled out by the Prime Minister Narendra Modi in July 1. It disrupted business activity and largely affected consumer spending.
Also, a sister survey compiled by the IHS Markit on Wednesday showed that India's manufacturing activity lost momentum in October and barely expanded, as the implementation of GST dented domestic demand.
"Recovery from the GST implementation was sustained in the private sector in October, mainly radiating from service providers as growth in manufacturing was relatively subdued," Aashna Dodhia, an economist at IHS Markit, told Reuters.
Firms also charged higher prices to end-consumers suggesting that inflation will increase over the coming months.
The Reserve Bank of India, however, stood pat and kept the rates unchanged in October as consumer inflation hit a five-month high of 3.36 percent in August, which is not far from the central bank's 4 percent target.
According to analysts at Trading Economics, the inflation rate in India is expected to be 4 percent by the end of this quarter. But according to the latest PWC forecasts India's inflation will be 3.6 percent in 2017 and touch 5 percent in 2018.
However, despite big economic reforms like the GST and demonetisation that dented India's growth rate, reports suggest that the Central government expects growth to accelerate to 6.4 percent during the July-September quarter, followed by 7.1 percent and 7.7 percent over the last two quarters of the current fiscal year that ends in March.