The continued slowdown in the service sector marginally moderated, as per a survey by HSBC Index.

The latest reading of 48.3 increased from December’s 46.7, signalling a moderate rate of output contraction that was the weakest in the current seven-month sequence of decrease.

Though, January data showed a seventh successive monthly decrease in business activity across the Indian service economy, the rate of decline was moderate. New business also fell, although slightly, according to HSBC Services Business Activity Index, compiled by Markit.

The headline HSBC Services Business Activity Index showed below 50 no-change threshold that separates expansion from contraction in January.

Panellists cited tough economic conditions, political issues and lower new order levels as the main reasons behind the fall in output.

“Indian service providers reported falling new business received during January, as has been the case since July last year. That said, the rate of contraction was slight and the slowest in that sequence. Survey respondents commented on increased competition for new work, deteriorating confidence among clients and weaker underlying demand,” it added.

Employment improves

Nonetheless, employment rose further in the latest month and positive sentiment was the strongest since July last year.

Despite having lower new business, service providers hired additional workers in January. This was the second successive monthly rise in employment, although the rate of job creation was only marginal and slower than in December. Where job creation was indicated, this was attributed to expectations of higher new orders in coming months.

Indeed, service providers were optimistic in January that business activity would expand over the next year. Growth is expected to be supported by planned increases in marketing, forecasts of an overall improvement in the Indian economy and stronger demand. Moreover, the degree of positive sentiment was the highest in six months.

Sector data highlighted Post & Telecommunication as the best performing category. This was the only sector to record higher output and new business. Conversely, Financial Intermediation suffered the sharpest declines in both business activity and new orders among the remaining five monitored sectors.

Input Cost rises

Meanwhile, input cost inflation picked up pace, while the rate of charge inflation was little-changed from that seen in December. Higher raw material and fuel prices were predominantly cited as the main drivers of input price inflation, although the depreciation of the rupee was also noted. The latest rise in costs was the strongest in three months, but below the long-run series average. Prices charged rose only moderately.

Outstanding business in the Indian service sector fell in January, thereby ending a two-month sequence of accumulation. Anecdotal evidence highlighted a general lack of pressure on operating capacity. The rate of depletion was, however, only slight.

(This article was published on February 5, 2014)
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