Services growth drops to one-year low in May: Survey

Indian services activity weakened in May as disruptions arising from the elections hampered the growth of new work intakes, a private survey showed on Wednesday.

The seasonally adjusted Nikkei India Services Business Activity Index fell to 50.2 in May from 51 in April. The latest figure highlighted the slowest growth rate in the current 12-month stretch of expansion.

Some firms suggested that output rose in tandem with ongoing sales growth, while competitive pressures and the elections reportedly curbed the upturn.

However, there were signs that the slowdown may prove temporary as companies stepped up hiring and became more confident about future prospects. Firms were also helped by a lack of inflationary pressures in the sector.

"India's dominant service economy again suffered the impacts of election disruptions, with growth of both new work and business activity softening for the third straight month," said Pollyanna De Lima, Principal Economist at IHS Markit and author of the report.

"With this now over, upcoming releases of PMI data will be key in showing whether the sector was only hampered by the elections or is actually cooling," she said.

The rise in total new work across the service economy was supported by strengthening demand from overseas. New export business increased for the third straight month and to the greatest extent in just under a year. Similarly, goods producers experienced a quicker expansion in international orders.

Services companies retained positive projections about the 12-month outlook for business activity. Expectations of favourable public policies, better demand conditions and planned marketing were among the reasons cited for optimism.

"Taking the results released today in conjunction with manufacturing sector data published on Monday, PMI figures show that the combined private sector remains in good health," said De Lima.

"Some ground was lost so far in the first quarter of fiscal year 2019-20 but, with a government formed and a resumed policy agenda, a recovery is expected as we head towards the second half of 2019," she said.