Following the manufacturing sector, services sector also seems to be in the slow lane as the Purchasing Manager Index dropped to 51.5 in August as against 54.2 in July. Still, it is sixth successive month of expansion.

This index, better known as the Nikkei India Purchasing Manager Index (PMI), isprepared on the basis of a survey conducted among purchasing managers of over 400 private companies. These companies belong to five sectors namely Consumer Services, Transport and Storage, Information and Communication, Financial and Insurance and Real Estate and Business Services. An index over 50 shows expansion and if it goes below 50, it indicates contraction. The index and subsequent report is prepared by IHS Markit.

Confidence growing

Aashna Dodhia, Economist at IHS Markit, said that the August data signalled that the pace of growth in India’s service economy cooled from July’s recent peak. This was matched by the slowest expansions in new business and employment since May and November 2017 respectively. “Input cost inflation in the service sector accelerated to the sharpest since November 2017, fuelled by higher oil-related prices. Meanwhile, firms faced pressure on their margins as they were unable to fully pass on higher cost burdens to price sensitive customers,” she said.

Still, optimism is there for better months ahead. Dodhia said that amid reports of strong demand conditions, the overall economy registered in expansion territory for the sixth consecutive month, marking the longest period of growth since a 16-month sequence that ended in October 2016. “On another positive note, business sentiment towards the 12-month outlook strengthened to a three-month high, with stronger confidence seen among service providers,” she said.

There was some good news on the employment front. The report mentioned that Indian service providers raised their staffing levels during August, thereby extending the current period of job creation to one year. There were reports that firms raised their staffing levels in response to higher volumes of incoming new business. That said, job creation eased to the weakest since last November. Underlying data indicated that jobs growth was evident across all five broad sub-sectors.

Marginal inflation

Reflecting changes in inflation indices, the August data signalled that Indian service providers raised their average selling prices during the month under consideration, the report noted. However, the rate of inflation remained marginal and broadly similar to July’s 16-month low.

Panellists attributed higher output charges with the pass through of greater cost burdens to clients. Inflation was registered at firms operating in Transport and Storage, Consumer Services and Real Estate and Business Services.

Since, manufacturing was also down in the month of August, it impacted the Composite Index which fell to 51.9 in August from July’s 21-month high of 54.1, The latest reading pointed to a modest rise in overall output that was the slowest in three months.

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