Service sector activity in July fell to its lowest level in nearly four years, evidently under the impact of the introduction of the Goods and Services Tax (GST), according to a private monthly survey.
The Nikkei India Services PMI Business Activity Index plunged to 45.9 in July, its lowest level since September 2013.
In June, it was at an eight-month high of 53.1.
An index reading above 50 indicates expansion, while an imprint below the benchmark denotes contraction.
The manufacturing sector similarly contracted in July, with the Nikkei India Composite PMI Output Index falling to 46 that month from 52.7 in June.
“The launch of the GST was mentioned by services firms as having caused a contraction in new work, leading to lower activity,” a Nikkei statement noted on Thursday. Factory orders decreased in July and at the quickest pace since February 2009, it added.
The data come a day after the Monetary Policy Committee announced a 25-basis points cut in the repo rate to help boost investments.
“Whereas many will question how deep an impact the GST will have on the economy in the near- and long-term, firms seem convinced that prospects will brighten as the new tax regime becomes clearer,” said Pollyanna De Lima, Principal Economist at IHS Markit, and the author of the report.
“As such, confidence regarding the year-ahead outlook for business activity climbed to an 11-month high,” she added.