Services sector growth at 7-month low in April, hit by Lok Sabha polls

Political and economic uncertainty arising out of the more-than a month long general elections, combined with rising competition, saw growth in the services sector reduce to a seven-month low in April, according to the widely-tracked Nikkei Purchasing Managers’ Index (PMI) report. 

The dominant sector of the Indian economy saw PMI for April go down to 51, after hitting 52 in March. The 50-point mark separates expansion from contraction. With growth slowing and price pressures easing, it is likely that RBI’s Monetary Policy Committee shall cut the policy rate for the third successive time in June, the PMI report said.

For services, growth of incoming new work has been maintained by strategic pricing and successful advertising. Also, the rise in sales for service providers was supported by stronger demand from overseas markets, as signalled by the quickest increase in new export business for ten months. But the expansion was reportedly curtailed by the ongoing elections, the report pointed out.

“In the services sector, competitive conditions and a shift towards online bookings among customers reportedly restricted new business gains and in turn growth of activity. On a more positive note, the labour market is showing resilience as companies hired extra staff at an accelerated pace,” Pollyanna De Lima, principal economist at IHS Markit, and author of the report, said.

The rise in employment was moderate, though it quickened from March. In April, job creation in the manufacturing sector eased to the weakest in the current 13-month sequence of expansion. Separate PMI data for manufacturing, issued a couple of days back, showed April had also proved difficult for manufacturing growth, which hit an eight-month low. PMI for manufacturing declined from 52.6 in March to 51.8 in April.