HSBC’s Purchasing Managers’ Index for services falls first time in 13 months

NEW DELHI: Activity in India’s services sector contracted for the first time in 13 months in May as demand softened and output fell, a private survey showed on Wednesday, casting fresh doubts on the strength of the economic recovery.

The HSBC’s Purchasing Managers’ Index ( PMI) for services slipped under the 50-point mark that separates growth from contraction in May to 49.6 points from 52.4 in the previous month.

The contraction in the largest contributor to the economy came after six straight months of expansion.

“Restrained demand accompanied by sweltering heat and the earthquake led to falling new work. Nonetheless, the sector is expected to see a rebound in coming months, as these factors fade away,” said Pollyanna De Lima, economist at Markit. PMI data released on Monday showed manufacturing activity at a four-month high in May but core sector index released the same day showed a 0.4 per cent contraction in output of eight infrastructure sectors. On Tuesday, the Reserve Bank of India (RBI) cut its key policy rate 25 basis points or 0.25 percentage points to give support to the economy while cutting its growth forecast for the current fiscal to 7.6 per cent from 7.8 per cent. Indian economy expanded 7.3 per cent in 2014-15 but has run into headwinds of weaker global growth and potentially deficient monsoon.

The PMI report, based on the survey of 350 private sector firms, suggested that the incoming new work decelerated on account of competitive pressures and natural disasters.

Nonetheless, the rate of contraction was marginal overall, it said.

The services sector contributes 51 per cent to the Indian economy. It expanded 10.1 per cent in 2014-15, the first double-digit growth in the 2011-12 series. Indian service providers reported rising cost burdens in May. The increase in input prices gathered pace since April, but was weaker than the long-run survey average, the report said.

The official data shows that inflation remains well under control, but may see a spike on account of the expected monsoon deficit. Wholesale Price Index fell 2.65 per cent in April, marking the sixth straight month of deflation while consumer inflation, the primary gauge used by RBI, eased to a four-month low in April at 4.87 per cent. India’s services exports stand at about $145 billion, close to half of the merchandise exports of over $300 billion. The government aims to double combined exports from India to $900 billion by 2019-20. “The manufacturing economy has moved up a gear with production and new order growth, the strongest since January,” said De Lima.

The HSBC’s composite index, which tracks activity in both manufacturing and services, fell to a seven-month low of 51.2 in May.