Service sector growth contracts for first time in a year in June, PMI at 49.6

Business activity growth in India’s service sector gathered contracted in June as broadly stagnant sales caused the first drop in business activity in over a year and led to job creation at a 22-month low, a private survey showed on Wednesday.

The Nikkei/IHS Markit Services Purchasing Managers’ Index fell to 49.6 last month from 50.2 in May, going below the 50-mark reading that separates contraction from growth.

As per the survey report, weak sales, competitive pressures and unfavourable taxation all hampered output.


“It's somewhat surprising to see some companies linking subdued demand to high tax rates, two years on from the GST implementation, with the hotel tax mentioned in particular,” said Pollyanna De Lima, principal economist at IHS Markit and author of the report.

A sister survey on Monday had shown manufacturing activity in India losing momentum in June due to a softer increase in orders.

The Nikkei India Manufacturing Purchasing Managers’ Index fell to 52.1 in June from 52.7 in May.

Put together, the Nikkei India Composite PMI Output Index fell to 50.8 from 51.7 in May.

“The latest PMI results for India bring some concerns over the sustainability of the relatively robust growth rates seen at the start of the year, and the ability of companies to create jobs,” De Lima said.