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A day after Reserve Bank of India (RBI) governor Raghuram Rajan said economic growth is recovering, the country's largest sector, services, contracted for a second month in a row in June, showed Nikkei Purchasing Managers' Index (PMI) as new work declined. Even then, service providers hired staff, though marginally.
PMI fell to 15-month lowest at 47.7 points in June from 49.6 in May. This was the lowest figure since March 2014. A reading below 50 means a fall in activity, and above 50 means a rise in activity. (PMI for services is based on responses from around 350 private sector companies.)
Underlying the drop in services activity was a further contraction in new business, said Markit Economics, which compiles PMI data.
PMI fell to 15-month lowest at 47.7 points in June from 49.6 in May. This was the lowest figure since March 2014. A reading below 50 means a fall in activity, and above 50 means a rise in activity. (PMI for services is based on responses from around 350 private sector companies.)
Underlying the drop in services activity was a further contraction in new business, said Markit Economics, which compiles PMI data.
Business activity fell in five of the six monitored categories, the exception being hotels and restaurants.
Pollyanna De Lima, economist at Markit, said, "June's Indian service sector data disappointed, with reductions in both activity and new business accelerating since May."
June's reduction in new work was the quickest since December 2013, with survey respondents commenting on competitive pressures and extreme heat.
"The heat wave and competitive pressures were again reported to have weighed on service providers' performance," Pollyanna De Lima said.
Despite the lack of incoming work, services companies indicated that outstanding business increased during June. That said, the rate of accumulation was only marginal.
There were mentions of delayed payments from clients.
Indian service providers raised employment further in June. The rate of job creation was, however, only marginal and slower than the long-run series average. Manufacturing is expected to provide more jobs, but manufacturers held back from hiring despite growth in June.
With PMI for manufacturing also declining to 51.3 in June from 52.6 in May, the composite output contracted for the first time in 14 months to 49.2 points in June.
Input prices faced by Indian services firms rose at a softer pace in June, with inflation well below the series average.
"The latest data suggest the RBI's commitment to support economic growth may result in further rate cuts at its August meeting, probably the last in 2015," the Markit economist said.
Rajan had on Thursday said economic growth is recovering and investment is picking up.
However, confidence among Indian service providers remained strong in June, with survey respondents expecting activity to increase over 12 months.
However, the degree of positive sentiment expressed was the lowest in three months and weak by historical standards.
Those survey respondents anticipating growth of activity cited new projects, improved marketing strategies, and hopes of better economic conditions. PMI for services is based on responses from around 350 private sector companies.
