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Services PMI declines to 6-month low in October

BS Reporter  |  New Delhi 

The services sector, which contributes about 60 per cent to India’s gross domestic product, expanded at a six-month low in October, according to the HSBC Purchasing Managers’ Index (PMI). The PMI for services in India fell to 53.8 points in October, against 55.8 points in September.

A reading above 50 points shows expansion, while one below it denotes contraction.

If official data is on the lines of the PMI data, there could be a major slowdown in economic growth, as the services sector is a ray of hope for economic expansion. It is expected India’s industrial sector would see only a marginal recovery.

Markit Economics, which compiles the PMI, said in October, growth in new orders eased slightly and firms scaled back the pace of hiring.

Leif Eskesen, HSBC chief economist for India and the Association of Southeast Asian Nations, attributed the slowdown in services to delay in payments. “Outstanding business rose reportedly due to a delay in payments, which could also explain the slower pace of growth in business activity,” he said.

However, demand remained strong, Markit Economics said.

Markit Economics said though the rate of expansion in output was robust, it was the slowest since April.

Since manufacturing PMI inched up from 52.8 points in September to 52.9 points in October, the composite index (which includes manufacturing and services) fell from 55 points in September to 53.5 points in October.

However, service providers remain optimistic about the short-term business outlook. Planned expansion, increased marketing and the launch of new projects are expected to drive output growth, according to the PMI survey.

Services companies charged higher prices, citing the increasing costs on raw material, petrol, food, gold and rents. “It explains why (Reserve Bank of India) remains hesitant about easing the monetary policy,” said Eskesen.

In 2011-12, India’s economic growth slid to a nine-year low of 6.5 per cent, pulled down by 5.3 per cent expansion in the fourth quarter. In the first quarter of this financial year, the economy grew 5.5 per cent, dashing all hopes of recording the 7.6 per cent growth estimated in the Budget. Now, even the 6.5-6.7 per cent estimate of the government and its agencies seems a distant dream.

In September, India’s eight core sectors grew at a seven-month high of 5.1 per cent, raising hopes industrial production would expand more than the 2.1 per cent growth in August.

Wholesale Price Index-based inflation stood at 7.81 per cent in September, against 7.55 per cent in August. At its monetary policy review on October 30, kept the repo rate unchanged at eight per cent. However, it indicated it might consider cutting rates from the fourth quarter. The central bank cut the cash reserve ratio by 25 basis points, a move that was expected to infuse Rs 17,500 crore into the system.

First Published: Tue, November 06 2012. 00:22 IST