A worker walks along the dock as materials are unloaded from a ship, not pictured, at Krishnapatnam Port in Krishnapatnam, Andhra Pradesh, India. (Photographer: Dhiraj Singh/Bloomberg)

Services Activity Contracts In November As New Business Fails To Pick Up

Activity in the Indian services sector contracted in November after two consecutive months of growth, as new business failed to pick up pace amid rising costs.

The Nikkei India Services Purchasing Managers’ Index declined to 48.5 last month from 51.7 in October, according to a statement by Markit. It fell for the first time in three months. A reading above 50 indicates economic expansion, while a reading below 50 signals contraction.

According to analysts at the research firm, business activity in the sector is taking a backseat due to the lagged effect of the Goods and Services Tax implementation. However, service providers continued to add to their workforce at a moderate pace, said Markit.

The ray of sunshine in the latest PMI dataset was the resilience of the labour market as firms continued to raise their workforce numbers for the third consecutive month, resonating with stronger business sentiment across the service sector.
Aashna Dodhia, Economist, IHS Markit

The sluggish demand and lower customer turnout was compounded by higher input cost inflation which accelerated at the fastest pace since October 2013. Markit noted that even though service providers increased their average selling price on products in lieu of increasing input costs, they were, however, unable to pass on the entire cost burden to price-sensitive clients.

Services Activity Contracts In November As New Business Fails To Pick Up

Composite Index Declines Too

The index of composite output remained above the 50 mark, but fell to a three-month low on account of the contraction in the services sector which offset growth in the manufacturing sector.

The Nikkei Composite Output Index declined to 50.3 in November from 51.3 in October, the statement added. Even though private sector output rose for the third straight month, the dip in the index dip hinted at a broad stagnation in the private sector output, Markit said.

“Intensifying cost pressures at service firms could constrain output growth in the near-term and reduce any central bank appetite to reduce interest rates,” said Dodhia.