Meaningful pick-up in business in India yet to materialise; here’s why

By: |
Updated: June 4, 2016 8:33:02 AM

The country’s services activities grew at their slowest pace in six months in May, as business inflows slowed and confidence of service providers hit a three-month trough, reports fe Bureau in New Delhi.

Service-sector-startups-ReThe Nikkei India Composite PMI Output Index, which tracks activities in both the manufacturing and services sectors, also dropped to a six-month low of 50.9 in May, compared with 52.8 in April. (Reuters)

The country’s services activities grew at their slowest pace in six months in May, as business inflows slowed and confidence of service providers hit a three-month trough, reports fe Bureau in New Delhi.

The Nikkei/Markit Services Business Activity index dropped to 51.0 in May from 53.7 in the previous month, thanks to the lowest expansion in business activity in 10 month. A reading above 50 suggests expansion, while the one below that level represents contraction.

Coming on the back of a marginal rise in the manufacturing Purchasing Managers’ Index in May, the latest data suggest a meaningful pick-up in business activities is yet to materialise, despite the latest GDP data showing the economy grew 7.6% in 2015-16, compared with 7.2% a year before.

The Nikkei India Composite PMI Output Index, which tracks activities in both the manufacturing and services sectors, also dropped to a six-month low of 50.9 in May, compared with 52.8 in April.

Output levels inched up in only half of the six services categories — transport & storage, post & telecommunication and financial intermediation. Services growth may have been affected by increased competition and the assembly elections in some regions, according to a statement by Nikkei. “There was ongoing evidence of spare capacity in the service sector, as unfinished business declined for the fourth successive month,” it said.

However, analysts don’t expect a rate cut by the Reserve Bank of India in its monetary policy review meeting next week, saying the central bank would most likely wait for the progress and spread of monsoon before going for another round of easing action. The forecast of an above-normal monsoon season in 2016 after a gap of two years and good GDP growth in 2015-16 have provided some leeway to the central bank, they added. However, services growth slowed to 8.9% in 2015-16, compared with 10.3% a year before, according to the GDP data.

“The latest PMI numbers raise doubts about the effectiveness of economic and monetary policies,” Pollyanna De Lima, economist at Markit, which compiles the survey, said.

Overall job creation in services remained marginal (manufacturing sector, too, saw slight increase in payrolls), with with only 1% of survey participants signalling higher payroll numbers.

“Amid reports of higher petrol prices, average cost burdens facing service providers in India rose during May. The latest increase in input prices was the eighth in as many months, but the rate of inflation eased since April and was lower than its long-run average. Conversely, cost inflation at manufacturers accelerated to the fastest since March 2015,” the statement said.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Switch to Hindi Edition
FinancialExpress_1x1_Imp_Desktop