The latest reading indicated that activity rose at a solid rate, one that was the slowest in three months. Whereas output growth in the manufacturing sector accelerated, a slowdown was registered at service providers.

After adjusting for seasonal factors, the Business Activity Index posted 54.2 in February (down from 57.5
in January), indicating a continued, albeit slower, expansion of service sector activity in India.

Despite posting above the no-change threshold for the sixteenth successive month, the latest index reading was three points below the long-run series average. Anecdotal evidence suggested that output growth reflected higher levels of new orders.

Incoming new business placed at Indian private sector firms increased solidly during February. New orders
rose at both manufacturing and services companies. Service providers mentioned that stronger demand,
increased marketing and maintained quality of services all fed through to the latest rise in new orders.
In line with new order growth, backlogs of work in the Indian private sector rose for a further month.
Manufacturers registered a moderate rise, but in the service sector unfinished business levels expanded
solidly and at the quickest pace in 32 months.

Average prices paid by service providers in India increased sharply in February, with the rate of inflation the fastest since June last year. In the manufacturing sector, input price inflation remained robust. Panel members that mentioned a rise in input costs mainly linked this to increased raw materials and fuel prices. Companies operating in the Indian private sector continued to pass on higher costs to clients through increased output prices. With the rate of charge inflation accelerating at both manufacturing and services firms, the overall pace of inflation was sharp, and the fastest in seven months.

Output prices have increased in each month since June 2009. Service providers again signalled optimism regarding the 12-month outlook. Around 42% of survey respondents anticipate activity levels to be higher in the upcoming year. This compared with only 3% that expect a reduction. Subsequently, the degree of positive sentiment was strong, although unchanged from that seen in the previous survey period. Panellists reported that better economic conditions, increased marketing and maintained quality of services all should lead to higher activity over the coming year.

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