The HSBC Purchasing Managers Index for the services sector, which gauges the activity of hundreds of Indian companies, slipped to 54.2 in July from Junes 54.3. The index for the sector, which makes up nearly 60% of the economy, has held above the 50-mark that separates growth from contraction, since November last year. Service sector activity grew at a steady pace in July, with growth in new orders and employment holding up, said Leif Eskesen, an economist at HSBC.
The survey showed order books grew at the same clip as June, prompting businesses to increase their workforces at a similar pace as in the previous month. But sagging demand from Indias major trading partners abroad the US, the euro zone and Britain dented hopes for the future among Indian companies in July.
The index measuring business expectations fell to 69.5 from 72.9 in June. Indian firms are also losing confidence because of the governments inability to push through long-pending policy reforms such as foreign direct investment in the supermarket and airline sectors.
Economic growth which fell to its lowest in almost a decade in the January-March quarter. Indias economy grew 5.3% in the three months to March a far cry from the near double-digit rates before the financial crisis started in 2008.
Faltering economic gro-wth prompted the Reserve Bank of India to leave its repo rate unchanged at 8% earlier this week, after cutting it by a more than expected 50 basis points in April, as high inflation remained a concern.
With inflation risks still lingering despite the slowdown and policy action out of Delhi so far insufficient, the RBI has little room to manoeuvre, Eskesen said.
In its latest projections the RBI also raised inflation forecasts for the fiscal year ending March 2013, expecting the disappointing monsoon to impact prices. However, suggesting temporary relief, the input prices sub-index of the PMI survey fell to its lowest since October 2011.
A pick-up in prices from here would weaken calls for policy easing to help pull Asias third largest economy back from a slowdown.