Pedestrians walk along a road in Mumbai, India (Photographer: Dhiraj Singh/Bloomberg)

India’s Services Activity Slows Down On Weak New Business Growth

India's services activity slowed down in August due to weakest growth in new business orders in three months.

The Nikkei India Services Business Activity Index fell to 51.5 last month from July’s 21-month peak of 54.2, research firm IHS Markit, that compiles the index said in a report. A reading above 50 indicates expansion in the activity while a number below signals a contraction. “Subsequently, firms raised their staffing levels at the slowest pace since last November.”

On the price front, the input cost inflation was marked and the strongest for nine months, the research report noted.

The Nikkei India Composite PMI Output Index also fell to 51.9 in August from 54.9 clocked in July, due to weaker growth in manufacturing and service sectors.

The Index remained above the 50-point-mark due to the modest rise in overall output that was the slowest in three months.

“Higher employment reflected greater volumes of incoming new business. As was the case with activity and new work, information and communications registered the fastest growth,” the research report said.

Reflecting improved demand conditions, the manufacturing sector recorded a further rise in employment. However, job creation was marginal and meant, at the composite level, employment rose at the slowest rate since November 2017.

August data signalled that the pace of growth in India’s service economy cooled from July’s recent peak. This was matched by the slowest expansion in new business and employment since May (2018) and November 2017, respectively.
IHS Markit Report

Input cost inflation in the service sector accelerated to the sharpest since November 2017, fuelled by higher oil-related prices. Meanwhile, firms faced pressure on their margins as they were unable to fully pass on higher cost burdens to price sensitive customers.

“Amid reports of strong demand conditions, the overall economy registered in expansion territory for the sixth consecutive month, marking the longest period of growth since a 16-month sequence ended in October 2016. On another positive note, business sentiment towards the 12-month outlook strengthened to a three-month high, with stronger confidence seen among service providers,” the report said.