India’s service industries such as banking and hotels, which make up more than half the economy, grew for the 11th straight month, adding to inflation risks.
HSBC Holdings Plc and Markit Economics’ Purchasing Managers’ Index was at 58.1 last month compared with 60.9 in February, according to an e-mailed report today. A reading above 50 indicates expansion.
Economists expect Reserve Bank of India Governor to raise benchmark interest rates for the second time in a month in the April 20 monetary policy statement to curb rising prices. India’s key wholesale price inflation rate climbed to a 16-month high of 9.89 percent in February.
“Inflation is definitely a clear risk and the Reserve Bank has a lot to do to damp it,” N.R. Bhanumurthy, an economist at the New Delhi-based National Institute of Public Finance and Policy, said before the report. He said the central bank may raise interest rates by 25 basis points this month.
Subbarao increased the reverse repurchase rate by a quarter-point to 3.5 percent from a record-low 3.25 percent and the repurchase rate to 5 percent on March 19.
“There is a clear upsurge in the economy as indicated by the different indicators,” said Dharmakirti Joshi, chief economist at Crisil Ltd., the Indian unit of Standard & Poor’s. “The central bank has to lift rates more to control prices.”
The gain in services comes after the Purchasing Managers’ Index for manufacturing rose for the 12th straight month in March. Trade data released on April 1 showed imports rose 66.4 percent in February, indicating growing demand in the economy.
India’s $1.2 trillion economy may expand as much as 8.75 percent in the year ending March 31, according to Finance Minister Pranab Mukherjee.
Faster growth is boosting incomes in the world’s most populous nation after China, spurring consumers to spend more on phone services of Bharti Airtel Ltd. and borrow from lenders including State Bank of India Ltd.
Salaries in India may grow at the fastest pace in Asia- Pacific this year, according to Hewitt Associates Inc.
