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India’s services sector growth dips to a six-month low in May

03 June, 2016

India’s services sector growth fell to a six month low in May as new business inflows slowed, a private survey showed on Friday.

The Nikkei Services Business Activity Index, which maps the services sector activity, fell to 51 in May from April’s 53.7, according to data compiled by Markit, a Nasdaq-listed global diversified provider of financial information services. A reading above 50 indicates expansion.

The weak growth in services output comes after Markit said earlier this week that expansion in India’s manufacturing sector was also tepid in May. 

This dragged the overall private sector output growth down during the month. The Nikkei India Composite PMI (Purchasing Manager’s Index) Output Index, which maps both manufacturing and services sectors, fell to a six-month low of 50.9 in May from 52.8 in April.

“Latest PMI numbers raise doubts about the effectiveness of economic and monetary policies,” said Pollyanna De Lima, economist at Markit.

“Ongoing weakness in manufacturing and services was evident in May, with output growth losing momentum for a second straight month. Overall expansion across the two sectors was the lowest since last November, as was the case for new orders,” De Lima said.

The PMI data highlight the challenges India faces in sustaining high economic growth. Earlier this week, the Indian government said growth in gross domestic product for the January-March quarter accelerated to 7.9%, pushing the pace of expansion for 2015-16 to a five-year high of 7.6%.

The Markit survey also showed that the confidence of service providers slipped to a three-month low in May, although services companies expect output to increase over the coming 12 months.

“The gloomy growth picture will be a concern to policymakers and will raise the chances of further cuts in interest rates by the RBI,” Lima said. “This would be supported by subdued inflationary pressures, with May data pointing to weaker increases in both costs and charges.”

The Reserve Bank of India has lowered interest rates by 150 basis points since January 2015, including a 25-basis-point reduction in its last monetary policy review in April. 

RBI governor Raghuram Rajan has been under pressure to cut rates even more to stimulate demand and boost growth but he is likely to stand pat at the next rate-setting meeting on June 7 in view of the acceleration in economic growth and a recent uptick in inflation.

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India’s services sector growth dips to a six-month low in May

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