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The services sector, the biggest chunk of India’s economy, contracted in December for a sixth in a row, shows the widely-tracked HSBC Purchasing Managers’ Index (PMI).
The index, on which growth means a reading above 50 points, declined to 46.7 in the month from 47.2 in November. A blow, again, for the hopes of recovery the policymakers look for from the second half of the current financial year.
Not only did services’ activities decline; the pace of deceleration increased in December. The PMI for October was 47.1.
Changes in PMI and in gross domestic product (GDP) do not coincide, as the index also takes into account the confidence level of respondents. Also, PMI is calculated month-on-month, and GDP is estimated year-on-year. Besides, PMI is based on a survey of private companies, while GDP is near-complete data.
However, even services output has come down for six months in a row, said Markit Economics, the financial information agency which compiles the data.
The fall is the longest period of contraction since the global financial crisis period of 2008-09. The composite output index for both services and manufacturing fell to 48.1 points in December from 48.5 in November.
While the government is looking for turnaround in the economy in the second half of 2013-14, a revival does not seem likely in the third quarter. The economy failed to grow over five per cent in four straight quarters till July-September, though Prime Minister Manmohan Singh said in last week’s press conference that the economy was looking up.
PMI in services for the third quarter of 2013-14 was 47 points, compared to 46.7 in the previous quarter.
Anis Chakravarty, senior economist with Deloitte India, said the subsiding services numbers in GDP data corroborate those in the PMI. The tertiary sector expanded 5.7 per cent against 6.2 per cent in the first quarter.
“Expectation of a pick-up was there but that is not happening,” said Chakravarty. Four of the six broad areas of the service economy registered lower output volumes.
Underpinning the latest fall in services output was a solid decrease in incoming new work. New business contracted at the quickest pace since September, with respondents to the survey reporting an increasingly fragile economy and competitive pressures. A few said the coming general elections had contributed to the latest drop in new orders.
The sharpest decline in new orders was noted in the hotels and restaurants segment. Post and telecommunications remained resilient, with growth of both business activity and new orders.
“The services sector continues to face headwinds, with weakening new business dragging down activity,” said Leif Eskesen, chief economist for India and Asean at HSBC.
However, One positive aspect was an easing in the inflationary burden. The data showed the rate of inflation was moderate, even the weakest since July. “On a positive note, inflation pressures are easing,” Eskesen added. Also, the December data indicated private sector employment rose. The latest increase in payroll numbers was broad-based, with both manufacturers and service providers posting job creation, Markit Economics said.
And, despite the output fall in December, service providers remained upbeat about the prospects for business activity in 2014. “The degree of confidence was the strongest in five months,” said Markit.
It added the positive sentiment was linked by companies to forecasts of better economic conditions and hopes of higher demand. Some firms said output is anticipated to grow after the Lok Sabha elections.
| Month | PMI Services |
| Dec'12 | 55.6 |
| Jan'13 | 57.5 |
| Feb'13 | 54.2 |
| March'13 | 51.4 |
| Apr'13 | 50.7 |
| May'13 | 53.6 |
| June'13 | 51.7 |
| July'13 | 47.9 |
| Aug'13 | 47.6 |
| Sept'13 | 44.6 |
| Oct'13 | 47.1 |
| Nov'13 | 47.2 |
| Dec'13 | 46.7 |
Note: The reading is in points; a reading above 50 indicates growth and below that means contaction
