Nikkei services index slumps to 46.7; biggest monthly fall since November 2008

NEW DELHI: India’s services sector contracted sharply in November as lack of cash following the shock demonetisation of Rs 500 and Rs 1,000 notes disrupted demand, ending 16 months of expansion.

The Nikkei India Services Business Activity Index slumped to 46.7 in November from 54.5 in October, falling below the crucial 50 mark that separates expansion from contraction, providing the first evidence of economic dislocation due to the currency switch. It’s the first time since June 2015 that the index has gone below 50. But sentiment is buoyant — business confidence is at a three-month high — with the survey’s respondents expecting a rebound once cash supplies stabilise and the government achieves its aim of tackling black money.

“The latest set of gloomy PMI (purchasing managers’ index) figures for the Indian service sector shows that companies were heavily impacted by Rs 500 and Rs 1,000 notes ban,” said Pollyanna De Lima, economist at Markit and author of the report.

“Cash shortages resulted in fewer new business intakes, which in turn caused a fall in activity and ended a 16-month expansion sequence.”

The monthly fall is the biggest since November 2008 when the financial crisis unleashed global economic chaos. Data released by the same agency last week had shown factory output growth slowing due to cash shortages.