Services sector of Indian economy shrinks for seventh month in a row

05 February 2014

The biggest sector of the Indian economy, services, shrank for the seventh straight month in January, according to widely-tracked HSBC purchasing managers' index (PMI).

There was an uptick in the PMI for services though, as it rose to 48.3 points in January from 46.7 in the previous month, according to a statement by Markit Economics, which compiles the data. A sub- 50 reading shows decline in activities, including output, while a higher score shows expansion.

According to commentators, if PMI data were to reflect in official data, policy makers' hopes of seeing recovery in economic growth from the fourth quarter might be dashed. The PMI contraction was however, the weakest in seven months.

With an upsurge in manufacturing growth as PMI rose 51.4 points in January from 50.7 in the previous month, the composite PMI stood at 49.6 points as against 48.1 and together with services. It came as the seventh consecutive fall in composite PMI.

According to Markit Economics, respondents to PMI survey cited tough economic conditions, political issues and lower new order levels as the main reasons for the fall in output.

Leif Eskesen, chief economist for India & ASEAN at HSBC said service sector activity remained weak and broad based, as post & telecommunication led the softening in January.

Meanwhile, the headline HSBC Services Business Activity Index, though improved from December's 46.7 to 48.3 in January, still ruled below the crucial 50 mark separating growth from contraction.

HSBC attributed the fall in services sector output mainly to tough economic conditions, political issues and lower new order levels.

Service providers in India saw business orders decline for the seventh straight month January, even as competition for new work increased, confidence deteriorated among clients and underlying demand remained weak, HSBC said.

Service providers though, remained optimistic of expansion in business activity over the next year, largely supported by planned increases in marketing activities, projections of an overall improvement in the Indian economy and stronger demand.

Meanwhile, staffing levels across the private sector were up for the second successive month with both service providers and manufacturing companies hiring additional workers.

HSBC said, regarding price-rise, input cost inflation in the Indian private sector hit a three-month high.

According to Eskesen, despite the weak growth backdrop, the RBI had to stick to its hawkish bias to get inflation under control and through this eventually pave the way for a recovery in economic activity.

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