Services sector output dips in March

Presenting a contrary picture to the Government’s positivism, a private survey has presented a disappointing face of Indian Business Scenario.

HSBC’s India Composite Output Index fell to 48.9 in March from 50.3 in February. This index is prepared on the basis of a survey among purchasing managers of over 800 manufacturing and services sector companies.

According to the survey results, services purchasing managers index (PMI) declined to 47.5 in March from 48.8 in February, registering below the 50.0 no-change level for the ninth successive month.

The decline in services output is at a fastest rate in three months. On April 1, the agency had announced that manufacturing PMI dropped to 51.3 in March from 52.5 of February.

Talking about the services sector, the survey said that the latest reading pointed to a moderate drop in activity that was the most pronounced since last December.

Anecdotal evidence

Anecdotal evidence highlighted falling new orders and a difficult economic climate. Three services categories, Financial Intermediation, Renting & Business Activities and Transport & Storage, registered lower new businesses. It may be noted that index above 50 shows growth while below 50 shows declines.

Noting some stabilisation in recent months, Leif Eskesen, Chief Economist for India & ASEAN at HSBC, said that services sector activity weakened again in March led by softer domestic demand. Meanwhile, inflation pressures eased.

“Looking ahead, growth is expected to remain subdued in coming months, but pick up gradually during the second half of 2014. This, however, assumes that the election outcome provides the elected government with a workable mandate," he said.

New work intakes

The survey found that new business received by services companies decreased for the ninth month running in March. As was the case for output, the rate of contraction was the quickest in three months. Panelists commented that weaker client demand, partly linked to the forthcoming elections, led to the latest drop in new work intakes.

New orders placed at manufacturing companies rose at a softer rate. Concurrently, incoming new work in the private sector as a whole decreased, although slightly.

Backlogs of work

Backlogs of work in the Indian private sector were reported to have increased during March, with both manufacturing and services companies signaling expansion. Service providers linked the latest accumulation in outstanding business to cash flow difficulties and delayed payments from clients, while manufacturers commented on raw material shortages.

March data signalled employment growth in the Indian services sector, but the rate of increase was only slight. Where job creation was reported, this was attributed to forecasts of higher levels of new work in coming months. Payroll numbers in the private sector as a whole rose, although slightly and at a broadly unchanged pace from February.

Indian service providers were optimistic in March that activity would rise over the next 12 months. Growth of new business, supported by improved economic conditions and new marketing initiatives, is expected to drive the expansion in activity. Confidence strengthened in the latest month and was at its highest since last July.

COMMENT NOW