June services PMI falls

Index declines to 51.7 from 53.6 in May

Growth in services,  the largest sector of the Indian economy, fell in June compared to the previous month, according to the widely-tracked HSBC purchasing managers’ index (PMI). The index declined to 51.7 points in June from a three-month high of 53.6 points in May, indicating that economic recovery is not that certain. In fact, subdued economic conditions and increased competition for new work were blamed for slower growth by respondents to the PMI survey.

Adding 50.3 points of PMI manufacturing to services index, composite PMI was 50.9 in June, lower than 52 points in the previous month. Since any reading below 50 is contraction, this shows that the two dominating sectors of India’s economy, particularly manufacturing, are only marginally into the growth trajectory.

The new orders placed at private sector firms increased during this month, but weaker gain was registered in new work. However, the overall rate of expansion was slight and the weakest in 50 months. Also, production contracted for the first time in over four years, according to the survey.

Leif Eskesen, HSBC’s chief economist for India and the Association of Southeast Asian Nations, cited lack of new business flows as a key factor for low growth. “Service sector activity grew at a slower clip as new business flows moderated, which made businesses less optimistic about the year ahead.”

Inflation rose by a faster rate in the private sector during this month as the rise in input prices was at the quickest pace in three months, amid evidence of higher raw material, labour and fuel costs as well as the depreciating rupee against the dollar. “Notwithstanding the slowdown, inflation readings firmed up on the back of higher labour and raw material prices, with the depreciation of the rupee also cited as a factor,” said Eskesen.

Unfinished business levels also rose for the 11th successive month in June and manufacturers recorded a sharp accumulation in backlogs of work and attributed this power, raw material and water shortages.

However, there was some silver lining as employment level increased at faster rates across the manufacturing and service sectors, and job creation for the overall private sector was the quickest in nine months. Service providers offered optimism towards output growth in the one-year outlook. However, the degree of positive sentiment, witnessed across all the six sub-sectors, declined to the lowest in a span of eight months.