PMI services growth slips to 1-year low over election-related disruptions

Growth in services sector activities slipped to a one-year low in May because of election-caused disruptions, the Nikkei purchasing managers’ index (PMI) showed on Wednesday.

PMI for services, which is based on the responses of executives of 400 private sector companies, fell to 50.2 in May, from 51 in April, ending the euphoria caused by a rise in PMI for manufacturing last month. In PMI parlance, a print above 50 means expansion, while a score below that denotes contraction.

“India’s dominant service economy again suffered the impacts of election disruptions, with growth of both new work and business activity softening for the third straight month,” said Pollyanna De Lima, Principal Economist at IHS Markit and the author of the report.

The survey however noted that there were signs that the slowdown may prove to be temporary.

“Signs that we may see a revival in the service sector in the near term were, however, evidenced by a pick-up in hiring activity and improved sentiment. Also supportive of greater client spending and investment among businesses is the evident lack of inflationary pressures,” Lima added.

Meanwhile, the seasonally adjusted Nikkei India Composite PMI Output Index, that maps both the manufacturing and services industry, was at 51.7 in May, unchanged from April.

“Taking the results released today in conjunction with manufacturing sector data published on Monday, PMI figures show that the combined private sector remains in good health,” Lima said.

Earlier, the data had shown that PMI for manufacturing rose to 52.7 in May, from 51.8 in April, pointing to the strongest improvement in the health of the sector in three months. That, along with other developments such as bond yields, rupee value against the dollar, had prompted the finance ministry to say that these were sure signs of coming high economic growth.

Economic growth had slipped to a five-year low of 5.8 per cent in the fourth quarter of 2018-19.

Lima added that with a government formed and a resumed policy agenda in place, a recovery in the private sector growth is expected as “we head towards the second half of 2019”.

“With this (elections) now over, upcoming releases of PMI data will be key in showing whether the sector was only hampered by the elections or is actually cooling,” Lima said. 

On the prices front, the survey noted that, firms were also helped by a lack of inflationary pressures in the sector.

The latest data came ahead of the Reserve Bank of India’s monetary policy review decision. The RBI’s Monetary Policy Committee is slated to announce its bi-monthly policy on Thursday.