New Delhi: India’s services sector contracted for the first time in 13 months in May as orders turned sluggish and companies raised prices, according to HSBC Services PMI. A composite HSBC index for the manufacturing and services sectors also fell in May to the lowest level in seven months. The data comes at a time when there are concerns over growth after forecast of a deficient monsoon for a second straight year. HSBC India Services Business Activity Index, which tracks changes in activity at service companies, fell to 49.6 in May, from 52.4 in April due to decline in new business. Any reading below 50 indicates contraction.
“Anecdotal evidence from the survey indicates that the loss in momentum was driven by competitive pressures and the natural disaster. The latter referring to the earthquake (April 25) and its aftershocks having its epicentre in Nepal but also affecting neighbouring states like Bihar which could have disrupted transport and other services,” it said. HSBC said that this disruption will be temporary and growth affected by the tragedy should normalise.
However, the weakness in services extends beyond the earthquake, evidenced by the steady decline in momentum since February, it said.“However business expectations continue to improve and hiring in firms increased in May, although at a modest pace,” it said.
It also noted that recovery in growth, this year, is likely to be gradual, given the adverse impact on rural incomes from likely disorderly monsoons. “However, higher public investments and lagged impact of the monetary policy accommodation should offset weak rural demand somewhat.” Price indicators within the survey shows that input costs are rising and firms are keen to pass on these costs to final consumers.
