India's services PMI dips to six-month low of 52.0 in March on weak demand

India’s dominant services industry last month grew at its slowest pace since September, hampered by a weaker expansion in domestic demand that dragged the pace of hiring to a six-month low, a private survey showed.

The Nikkei/IHS Markit Services Purchasing Managers’ Index fell to 52.0 in March from 52.5 the previous month but remained above the 50 mark separating growth from contraction for a 10th consecutive month.

The index change “was partly caused by waning new business growth, with further increases to output prices perhaps contributing to the slide,” noted Pollyanna De Lima, principal economist at IHS Markit.

Although foreign demand improved last month after contracting slightly in February, a sub-index tracking overall demand slipped as firms raised prices more quickly - despite a decline in the rate of input price inflation.

However, that is probably not enough to boost retail inflation to above the Reserve Bank of India’s medium-term target of 4 per cent, thus paving the way for more monetary policy easing.

The RBI has a policy decision due later on Thursday, and it is widely expected to cut interest rates for a second consecutive meeting, according to a Reuters poll.

A slowdown in the growth in services activity, alongside weaker manufacturing expansion, led the India composite index to fall to a six-month low of 52.7 in March - the lowest since September - from February’s 53.8.

Despite a sub-index measuring optimism in the services industry hitting a six-month high, the one gauging employment weakened to its lowest since September.

“An anemic pace of job creation hints that service providers are not fully convinced about a shift into a higher growth gear,” De Lima said.

“Digging deeper into the anecdotal evidence provided by surveyed firms, there are concerns about delayed payment from clients and a challenging economic situation,” she added.