Services sector slowed down a bit in December, a private survey revealed on Friday. This follows a report that points to a slowdown in the manufacturing sector in same month.

The result of the Nikkei India Services Purchasing Managers Index (PMI) survey, shows that the services sector dipped to 53.2 in December as against 53.7 in November. Since Manufacturing PMI also slowed to 53.2 in December, the Composite PMI was also down, recording 53.6 in December.

Just like manufacturing, survey for Services PMI is conducted among purchasing managers of over 400 private companies. These companies belong to five sectors: 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 are prepared by IHS Markit.

Expansion mode

According to the report, service expanded further at the end of 2018, as strengthening demand continued to translate into new business gains.

Although growth of new work and activity moderated from the recent November high, companies hired additional workers to a greater extent. Supporting the uptick in job creation was an improvement in business sentiment and easing cost inflationary pressures. Expenses rose at the weakest pace in over one and a half years.

Pollyanna De Lima, Principal Economist at IHS Markit, said that India’s service sector continued to enjoy positive levels of activity in December, with new business and employment remaining on an upward path.

However, except for jobs, rates of expansion slowed slightly to form a somewhat disappointing end to 2018. She also observed that services companies took a breather from rising expenses as cost inflation eased to a 19-month low. This softening enabled firms to hire extra staff to a greater extent, whilst hiking their charges only marginally.

Cooling inflation

In turn, subdued inflationary pressures and cooling economic growth add some support for a rate cut early next year. “With business sentiment improving for the second successive month, the service sector looks set to sustain growth in 2019 despite predictions of some sluggishness prior to the elections,” she said.

Data suggested that the upturn in total new business was domestically driven as new export work was broadly unchanged, following a reduction in the prior month.

Even as services firms took on extra staff, outstanding business rose further. But with employment growth accelerating to the second quickest pace seen since last April, the accumulation in backlogs eased to the weakest in five months.

Prices charged for the provision of services in India rose again at the year-end, as firms sought to share additional cost burdens with their clients.

Despite being the highest in three months, the rate of charge inflation was marginal. Cost inflation meanwhile softened for the third straight month to the weakest since May 2017. Slower rates of increase were evident in four of the five monitored categories, the exception being Consumer Services.