April service sector growth at 7-month low, dented by LS elections : PMI

India’s services sector expanded at its slowest pace in seven months in April as some businesses postponed decisions and expansion plans until seeing results of the general election currently under way, a private survey showed on Monday.

The Nikkei/IHS Markit Services Purchasing Managers’ Index slipped to 51.0 in April, the lowest since September, down from 52.0 the previous month.

It remained above the 50 mark, the threshold separating growth from contraction, for an 11th consecutive month.

“Although the Indian private sector economy looks to be settling into a weaker growth phase, much of the slowdown was linked to disruptions arising from the elections and companies generally foresee improvements once a government is formed,” Pollyanna De Lima, principal economist at IHS Markit, said.

Voting in the election began on April 11 and ends on May 19. Results will be announced on May 23.

Although foreign demand grew at the quickest pace in 10 months, a sub-index tracking new business slipped to a 7-month low of 51.2 in April from March’s 52.3 as firms raised prices slightly more sharply - although still modestly.

With inflation below its medium-term target, the Reserve Bank of India cut its main interest rate twice in the run-up to the election - which was possible because inflation has remained low compared with previous years.

“The lack of inflationary pressures in both the manufacturing and service sectors, which coupled with slower economy growth, offers room for a further cut to the benchmark repurchase rate,” De Lima said.

Factory output also expanded at a weaker pace in April than the previous month amid uncertainty about what policies the new government might adopt.

That brought down the composite PMI to its lowest in seven months at 51.7.

Still, firms increased hiring in April as they remained optimistic about the coming year, the survey found.