Mumbai: The growth in India’s services sector activity fell at its fastest pace in the last three years in November following the demonetisation of high denomination currency notes.
According to a private survey, the new business declined for the first time since June 2015 amidst cash shortage leading to a solid reduction in services sector activity.
The Nikkei India services businesses activity index fell from 54.5 to 46.7 in November, its sharpest reduction in three years. A reading above 50 indicates expansion while a score below 50 indicates contraction in activities.
The fall in new work was the first in 17-months with panellists polled for the survey indicating that the cash shortages restricted new business bookings from clients.
However on an optimistic note, service providers who participated in the survey said that they expect activity to rise over the next twelve-months. Data released last week on the manufacturing sector showed a similar drop with Nikkei manufacturing PMI dropping to 52.3 in November from 54.4 in October.
“The latest set of gloomy PMI figures for the Indian service sector shows that companies were heavily impacted by the ban on Rs 500 and Rs 1,000 notes. Cash shortages resulted in fewer new business intakes, which in turn caused a fall in activity and ended a 16-month sequence of expansion.
The disruption is expected to be short-lived, however, with many panellists anticipating a pick-up in activity as these high-value banknotes are replaced and unorganised sector firms end their operations of dealing in unaccounted cash,” said Pollyanna de Lima, economist at IHS Markit.
Input costs in the Indian service sector were broadly unchanged in November as falling prices for petrol and raw materials acted to offset higher staff salaries.
Across the private sector as a whole, input cost inflation softened to the weakest since August building hopes about a further cut in interest rates. Efforts to secure new work and relatively stable costs encouraged services companies to lower their selling prices in November, the survey said.
