Hit by low demand, service sector growth declines to 4-month low in Sept

Low demand, little order growth and intensifying price pressures meant that services activity in September grew at the slowest pace in four-months, according to the widely tracked Nikkei India Services Purchasing Managers Index (PMI).

Services PMI for September fell to 50.9, down from 51.5 in August. The 50-point mark separates expansion from contraction. Despite expanding for the fourth straight month, the service sector saw broad stagnation in both new and existing business in the latest month.

Companies reported that market conditions were underwhelming amid a lack of demand at a time of generally higher prices. 

Underlying growth in activity and new work remained strongest in the Information & Communication category. In contrast, finance & insurance and business services categories saw gains.

Volatility in the sector has been mostly attributed to changing prices. Input prices rose to the greatest extent since last November amid reports of higher fuel costs, according to the report by IHS Markit, compiler of the PMI survey.

The Indian Rupee has been the worst performer among Asian currencies, reducing in value by more than 14 per cent since the beginning of the year, against the US Dollar.

"Rising price pressures were cited as a factor weighing on market activity, with reports from panellists of rising fuel and import prices, in turn mainly driven by the stronger US dollar," Paul Smith, Economics Director at IHS Markit, and author of the report, said.

In response, service providers raised their own charges. Average output price inflation was the strongest recorded since April and marked a twentieth successive monthly increase in prices charged. 

Similar price trends were seen in the manufacturing sector. With fuel and imported goods in general up in cost, input prices rose to the greatest degree for three months, leading to slightly firmer increase in output charges.

However, staffing levels were raised across the sector in September. Despite growing at the slowest pace since November, 2017,  the sector continued to expand its payroll numbers for the 13th straight month.

The growth story

On the other hand, growth in the manufacturing sector led to PMI rising to 52.2 in September, up from 51.7 in August. It was primarily manufacturing which resulted in the country's Gross Domestic Product (GDP) growth of 8.2 per cent in the first quarter of the current financial year, a two-year high.

The Nikkei India Composite PMI Output Index, which maps both the manufacturing and services sectors, also fell in September. It fell to 51.6 in September from 51.9 in August.