Growth witnessed in India’s services sector amid inflationary pressures

According to a business survey, exports reached a record high on strong global demand in August, even while growth in India's dominant services sector slowed slightly due to increased inflationary pressures.

Read more: India aims to close a China-sized gap in global economic growth

Factory growth rate at its highest in 3 months

The results from Tuesday, along with those from a sister poll conducted on Friday, which showed factory growth grew at its strongest rate in three months, indicate Asia's third-largest economy will continue to develop at a faster rate than any other major nation despite the slowing of global growth.

The Reuters poll's prediction for the S&P Global India services Purchasing Managers' Index was 61.0, but it actually dropped to 60.1 in August from 62.3 in July.

For the longest period since August 2011, the reading was above the 50-point threshold distinguishing expansion from contraction for a 25th straight month.

As highlighted by Pollyanna De Lima, associate director of economics at S&P Global, This increase in worldwide demand backed among the strongest sales performances recorded over the past 13 years and served as an opportunity for firms to increase their workforces as well as output.

Strong demand encouraged increased optimism about the future, which is good for chances of economic growth.

A sub-index measuring total demand saw a small slowdown in August compared to July. At 60.0, it was still robust but fell short of July's 62.2 13-year high.

The series' foreign demand peaked since it launched in September 2014.

The business outlook for the upcoming year was the most positive since December, which prompted companies to increase hiring at the quickest rate in nine months.

Even though input costs increased more slowly, inflationary pressures accelerated and the prices charged index reached an all-time high last seen in June.

Positive demand trends also contributed to the joint-fastest rise in prices charged for Indian services in more than six years, De Lima said. This may draw policymakers' attention and prolong reductions in the benchmark repo rate.

Inflation is expected to remain in the target

Up until at least October, India's inflation is predicted to stay over the Reserve Bank of India of India's target range of 2%-6%. However, the central bank is anticipated to hold its key policy rate steady at 6.50% until the end of March, and then reduce it by 25 basis points in April-June.

In spite of a three-month high in manufacturing activity in August, slower services growth caused the S&P Global India Composite PMI Output Index to drop from 61.9 to 60.9 last month.