PMI services drops to 3-month low in November as GST cools demand

Published On: 05, Dec 2017 | Source:

Services, the biggest sector of India's economy, slipped into the contraction mode in November, mainly as the overall demand was capped by the goods and service tax (GST) regime, shows the widely- tracked Nikkei purchasing managers' index (PMI).

Services in November fell to 48.5 points from 51.7 the previous month. The November reading was the lowest since August. A reading above 50 points denotes expansion and one below that means contraction.

This implies that the country's growth story will take time to pick up significantly, even as the economic growth did rise to 6.3 per cent in the second quarter of the financial year from 5.7 per cent in the first one.

Meanwhile, the Reserve Bank of (RBI) is unlikely to cut its policy rate on Wednesday as input costs are increasing due to a rise in the prices of food and fuel, besides higher taxes.

However, the employment scenario during November came as a relief, with jobs in the services sector rising despite a contraction in activities.

"Business under-performance emanated from July's that contributed to sluggish demand and lower customer turnout, according to anecdotal evidence," said Aashna Dodhia Economist at IHS Markit and author of the report.

Despite unfavourable demand conditions, service providers continued to add to their workforce numbers as the level of business sentiment in the service sector for the next 12 months rose at the strongest pace since July.

The latest services follows the manufacturing one announced on December 1, which showed robust growth in the manufacturing sector during November.

Accordingly, the Nikkei Composite Output Index, that maps both the manufacturing and services, activity fell from 51.3 in October to a three-month low of 50.3 in November, signalling a broad stagnation in output in

On the prices front, input cost inflation quickened to the fastest since October 2013 and accordingly service providers increased their average selling prices in November.

"That said, cost pressures further intensified at service firms that have seen fastest inflation since October 2013, which could constrain output growth in the near term and reduce any central bank appetite to reduce interest rates," Dodhia said.

Besides food and fuel, higher taxation led to an increase in overall input prices.

Inc, however, is demanding interest rate cut to further build on positive sentiment generated by the rebound and upgrade of the country's sovereign rating by Moody's.

In its October review, it had kept the benchmark interest rate unchanged on fears of rising inflation while lowering growth forecast to 6.7 per cent for the current financial year.

The central bank had reduced the benchmark lending rate by 0.25 percentage points to 6 per cent in August, bringing it to a 6-year low.