Activities in the services sector, which dominate the Indian economy, contracted in September to the lowest level in 19 months, showed the widely-tracked IHS Markit purchasing managers’ index (PMI).
The index fell to 48.7 in September from 52.4 in August due to subdued demand. In PMI parlance, a print above 50 means expansion, while a score below that denotes contraction.
This justified the RBI’s monetary policy committee’s stance to cut the repo rate by 25 basis points (bps). In fact, the commentator on PMI had talked about the increasing room for MPC to cut the rate, when the survey got released before the announcement by the RBI.
This is the second month in FY20 that the services sector contracted, the first being June when PMI had stood at 49.6.
All this indicated that the economic growth will remain lacklustre in the second quarter of FY20 too after it fell to over a six-year low of five per cent.
According to the survey, new work intakes contracted in September, after an 18-month sequence of expansion.
Firms said subdued demand conditions, unfair pricing among competitors and economic woes affected the sector.
Data released earlier this week showed that PMI manufacturing stood at 51.4 in September, unchanged from August, and thereby posting its joint-lowest reading since May 2018.
As such, growth of the Indian private sector activity came to a halt in September, ending a one-and-a-half-year sequence of expansion.
The Composite PMI Output Index that maps both the manufacturing and services sector fell from 52.6 in August to 49.8 in September, reflecting an outright reduction in activities.
“Private sector output in India contracted for the first time since February 2018. This reflected a decline in sales, albeit fractional, which restricted employment growth,” said Pollyanna de Lima, principal economist with IHS Markit.
Private sector employment continued to rise, but the pace of expansion softened to a three-month low. Marginal increases were evident in the manufacturing and service categories.
Challenging economic conditions hampered business sentiment in September, with optimism down at goods producers and service providers alike. Aggregate confidence level fell to a 31-month low.