Even the third quarter of the current fiscal year has started on a depressing note with services PMI indicating a contraction in services output for the second straight month. Fall in services exports to a 4-month low and the rise of input cost to a one-year high have brought down the confidence in the service sector to lowest in nearly three years. The contraction in the services sector makes a severe impact on the economy as the sector contributes to more than half of the Indian economy. The services GVA grew at a seven quarter low of 6.9 percent in Q1 FY20, compared to 8.4 per cent in the previous quarter.
Spike in input cost is also a reason why the services sector has slowed down in the past two quarters. Higher freight, fuel, material, vegetable and staff cost has raised the input price inflation to a year high, increasing the average prices charged.
The month of October has also seen a moderation in job creation whereas the business activity stabilised in comparison to September. The services PMI is based on parameters related to business activity, new business, new export business, outstanding business, the prices charged, input prices, employment, and expectations on future activity.
Meanwhile, the manufacturing PMI fell to 50.6 in October 2019, the lowest since October 2017. Both output and new orders expanded at the slowest rate in two years. The quantities of purchases fell for the third month in a row. Also, employment grew for the nineteenth month, but the pace of job creation was the second weakest over this period.
The Purchasing Managers’ Index (PMI) is an index of the prevailing direction of economic trends in the manufacturing and service sectors. It summarises whether market conditions, as viewed by purchasing managers, are expanding, staying the same, or contracting. The purpose of the PMI is to provide information about current and future business conditions.