India’s services sector recorded the slowest pace of expansion in five months in October, as competitive pressures and heavy rains in parts of the country led to a slower increase in output, according to a monthly survey released on Thursday. Yet, the seasonally adjusted HSBC India Manufacturing Purchasing Managers’ Index in October was higher than the 57.7 in September.
Significantly, October was the first full month, after the sweeping Goods and Services Tax (GST) cuts were implemented, and it was also the peak festive period.
As per the comparable index for manufacturing, activity accelerated to 59.2 in October, nearly a 17-year high, driven by strong response of factories to the demand boost from GST reductions. October’s index number was marginally lower than the 59.3 recorded in August, which was the highest in 17-and-a-half years.
Separately, the index of industrial production for September showed a faster year on year rise in key manufactured products than in the overall index, particularly consumer durables, and automobiles. This is seen as a timely supply response ahead of the festive season.
“India’s services PMI softened to 58.9 in October, which represented the slowest pace of expansion since May. Competitive pressures and heavy rains were cited as contributors to the sequential slowdown,” Pranjul Bhandari, Chief India Economist at HSBC, said.
While factors like demand buoyancy and GST relief led to an improvement in operating conditions, competition and heavy rains constrained growth. At the same time, the international demand for Indian services improved further, as signalled by another increase in external sales. The rate of expansion was solid, though the weakest since March.
Firms monitored by the survey suggested that the GST reform curbed price pressures. Input costs and output charges rose at the slowest rates in 14 and seven months, respectively. Going forward, companies were strongly confident of a rise in business activity over the next 12 months.
Amid reports of efforts to support rising new-business intake, meet delivery deadlines, and maintain reliable services, companies recruited additional staff in October.
“India’s composite PMI fell on a sequential basis from 61 in September to 60.4 last month, largely due to the slowdown in the services sector,” Bhandari said. Composite PMI indices are weighted averages of comparable manufacturing and services PMI indices.