Service sector activity skids to three-month low in April

Service sector activity for Indian economy moderated further in April owing to softer demand. Indian service sector growth as measured by the HSBC Purchasing Managers' Index calculated on a seasonally adjusted basis, fell to a three month low of 52.4 in April from 53 in March.

PMI, compiled monthly by global bank HSBC, measures economic health of a sector based on surveys of private sector companies. A reading of above 50 on the index denotes expansion.

According to the report, activity rose in five of the six broad areas of the service economy, the exceptions being hotels & restaurants. The level of new business placed with Indian service companies increased at the softest rate since May 2014, as per the report.

"The slowdown in the Indian service sector continued in April, with weaker activity growth reflecting softer demand conditions. On the positive side, panelists’ confidence regarding the one-year outlook for activity improved, indicating that firms are optimistic the current deceleration in growth is a temporary soft patch," said Pollyanna De Lima, economist at Markit.

Report on state of manufacturing sector released by HSBC early this week indicated manufacturing activity too lost momentum in the Indian economy as new orders increased at a weaker pace leading to companies reducing staffing levels and raising output to a lesser degree.

Indian economy has expanded at a fast pace in the past few months but the growth in sectors hasn't translated into higher employment figures. The report highlighted that employment levels at the private sector have remained largely unchanged for over one year.

Activity in both services and the manufacturing slowed down in April with the composite PMI declining to a six month low of 52.5. The low level of activity shall give impetus to the RBI to cut interest rates further in the upcoming policy review on June 2.

"Inflation rates for both input and output prices were weak by historical standards, providing the RBI with more scope for further rate cuts. An expansionary approach to monetary policy would, at a time when the economy is losing traction, provide much needed support for further growth," Lima further added.

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