Services sector slows for second month in a row

What could be seen as reality check after above 5 per cent growth in the first three months, a survey by HSBC indicated a slowdown in the growth of services sector in India. But the good news is that index is still 50.

Result of survey is known as HSBC India Service Purchasing Manager Index (PMI) and it stood at 50.6 in August as against 52.2 in July. The index is calculated on the basis of response received from 350 purchasing managers of private companies. These companies comprise hotels & restaurants, transport & storage, financial intermediation, renting & business activities, post & telecommunication and other services. Index above 50 reflects expansion while below 50 means contraction.

Since, it was announced on September 1 that manufacturing PMI (based on response from 500 companies) stood at 52.4 in August against 53 in July, it also affected composite output index. This came down to 51.3 in August from 53 in July. While this indicated a slowdown in output growth across the private sector, it remained consistent with a moderate expansion in activity.

“Output growth weakened from July at both services and manufacturing companies, although manufacturing production increased at the second quickest pace since February, 2013,” a HSBC statement said. On services specifically, it mentioned that the latest PMI data indicated a slowdown in growth of Indian service sector activity in August, as new business expanded at a weaker pace. Employment remained stable, while future expectations regarding activity growth fell to the weakest level since September 2013.

Since, the index was above 50, it mean expansion for fourth consecutive months. Among various sectors, the Post & Telecom firms showed best growth, while Hotel & Restaurants reported reduction. However, both the sectors did not reduce the manpower, while other service sector did.

“Services activity is once again turning down following a swift post-election uptick suggesting that an improvement in reform momentum is needed to lift sentiments in the sector,” Frederic Neumann, Co-Head of Asian Economic Research at HSBC said while adding that, on positive side, weaker activity has softened inflation indicators within the survey.