Services sector contracted for the first time in 13 months in May as orders turned sluggish and companies raised prices, an HSBC survey showed today, raising fresh concerns about the real economic growth at ground level.
A composite HSBC index for the manufacturing and services sectors also fell in May to the lowest level in seven months.
The data comes at a time when concerns are being raised in various quarters about the economic recovery process and forecast of deficient monsoon is resulting in renewed fears about inflation and on other macroeconomic fronts.
RBI Governor Raghuram Rajan also yesterday said that growth at ground level may be weaker than what is being suggested by the higher headline GDP numbers.
The HSBC India Services Business Activity Index, which tracks changes in activity at service companies, fell to 49.6 in May, from 52.4 in April as output prices in the private sector rose further with the rate of inflation being the highest in 13 months.
The index went below the crucial 50 mark, which separates growth from contraction, for the first time in 13 months.
Competitive pressure and natural disasters also led to the decrease in new business inflows, which declined for the first time since April 2014, HSBC said.
"Restrained demand accompanied by sweltering heat and the earthquake led to falling new work. Nonetheless, the sector is expected to see a rebound in coming months as these factors fade away," Markit Economist Pollyanna De Lima said.
Meanwhile, the seasonally-adjusted HSBC India Composite PMI Output Index -- which maps both manufacturing and services sectors -- fell to a seven-month low of 51.2 in May, from 52.5 in April.
"Disappointing May PMI data for India services indicated that the sector fell back into contraction after experiencing growth for six successive months," De Lima said.
HSBC, however, said that the prospects for the private sector output may perk up, going forward.
"An upturn in employment combined with improved business confidence further add to the evidence that prospects may brighten," Lima added.
Service providers, however, remained optimistic as improved marketing strategies and better economic conditions are expected to lead to better business activity over the next one year.
Undeterred by weaker demand, Indian services companies hired additional workers in May. However, the job creation was only fractional as the vast majority of survey participants signalled unchanged levels of staffing.
