India's services sector grows at 5-month high, but hiring dips

03 December 2014

Activity in India's services sector expanded at its fastest pace in five months in November, as new orders flowed in faster. But there was a decline in hiring for the first time in four months, the HSBC Purchasing Managers' Index (PMI) released today showed.

The index rose to 52.6 in the month compared with 50 in October. A reading above 50 means expansion, while one below that implies contraction.

The reading in November remained below the series average and sentiment remained subdued, especially with the decline seen in hiring. Markit  Economics, which compiles the PMI data, said services growth had little impact on employment during the month.

Also, new business sentiment slipped to the weakest since mid-2007, implying continued reforms were needed to sustain growth uptick.

''Service sector activity grew in November, as new business rose for a seventh straight month. However, despite an uptick in order flows, business sentiment deteriorated. It reminds us that a continued policy action to addresses investor concerns is required for sustaining the growth momentum,'' said Pranjul Bhandari, chief India economist at HSBC.

Annual services growth in the July-September quarter of this financial year was 7.05 per cent, compared with 6.80 per cent in the April-June period. Still, India's year-on-year gross domestic product growth in the three months to September 30 slowed to 5.3 per cent from 5.7 per cent in the June quarter, as industry, manufacturing in particular, did not pick up.

Manufacturing PMI data, released a day earlier, had revealed that the country's manufacturing activity in November had grown at the fastest rate in 21 months (53.3 points on the index). The Composite PMI Output Index - manufacturing and services taken together - for the month stands at a five-month high level of 53.6, up from 51.0 in October.

Posts & telecommunications was the best-performing segment in the services sector, while financial intermediation and hotels & restaurants saw contraction.

Business activity in November was driven by faster growth of new ventures. The new business sub-index accelerated to 52.5, its highest level since July.

Meanwhile, input costs fell for the first time since March 2009. The rate at which input prices decreased was the second-quickest in the survey's nine-year history.

Despite manufacturers reporting stronger inflationary pressures, the overall rate of cost inflation in the private sector eased to the weakest in the current 68-month sequence of rising prices.

Subsequently, prices charged by Indian services firms deteriorated, for the first time in more than four years, in November. That said, the overall pace at which selling prices fell was fractional.

A faster rise for goods producers did not prevent the rate of private-sector output inflation from easing to the joint-slowest in more than four years.

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