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Activity in the services sector, which occupies the largest share in the Indian economy, slumped moderately in October, according to the widely-tracked HSBC Purchasing Managers’ Index (PMI) released on Tuesday.
This was the fourth monthly contraction in a row. It stood at 47.1 points from 44.6 points in September, when it was the lowest since March 2009.
The services PMI has been deteriorating since July this year. Although the reading went up this month, this still indicates contraction, as a reading above 50 means expansion.
Leif Eskesen, chief economist for India and the Association of Southeast Asian Nations at HSBC, said: “The continued contraction in service sector activity is testament to the dampening effects of the heightened macroeconomic uncertainty, which is making businesses and consumers more cautious about spending."
The hope of a recovery in the second half of the year becomes dimmer, as the PMI manufacturing released for October had also contracted and stood at 49.6 points, the same as in September.
“While activity readings may be stabilising, a notable recovery is not on the cards for a while still,” said Eskesen.
The composite PMI, which takes into account manufacturing and services, rose slightly to 47.5 points in October from 46.1 points in the previous month, however, still in contraction.
“Output fell at a slower rate across the service sector. Lower levels of private sector output mirrored a further decrease in new business flows,” said Markit Economics, a financial information firm which compiles the PMI data.
Five out of the six sectors covered by the survey posted decline in business activity in October. The steepest decline was witnessed in ‘Hotels and Restaurants’.
The flow of new work was also dampened by various factors such as worsening client confidence, economic instability, competitive pressures and the cyclone Phailin, the firm noted. However, there was a silver lining, as employment in the manufacturing sector rose marginally.
There was a rise in inflation rates in the private sector, leading to input prices increasing at the quickest pace in 16 months.
RBI had raised repo rate by 25 basis points to 7.75 per cent in the second quarter monetary policy review citing inflation as the main factor preventing a rate cut.
"Despite the weak growth backdrop, the RBI has to keep its inflation guards up to address the lingering inflation pressures,” said Eskesen.
