India Services PMI Slumps as Pressure Builds on Modi to Spur GDP

(Bloomberg) -- A private survey showed India's dominant services sector contracted for the first time in three months, adding pressure on Prime Minister Narendra Modi to undertake economic reforms to boost growth amid a hawkish turn from the central bank.

The Nikkei India Services Purchasing Managers' Index slid to 47.8 in February -- the lowest since August -- from 51.7 in January, as business conditions deteriorated due to poor demand, a report showed Monday. A number below 50 indicates a contraction.

A dip in the services sector, which contributes about 60 percent to India's $2.3 trillion economy, could hurt an economy that's forecast to grow at its slowest pace in four years. Sluggish growth coupled with a lack of adequate job creation is building pressure on Modi to jump-start economic activity in Asia's No. 3 economy before seeking re-election in 2019.

The Reserve Bank of India, which will review interest rates on April 5, has flagged risks to inflation from higher crude oil prices and last month's federal budget, which widened fiscal deficit goals to boost spending. Businesses, grappling with slowing demand, are also bracing for rising input costs due to price pressures.

“RBI is focused on inflation. They have a target and as long as inflation is in higher trajectory there's no case for RBI to lower rates,” Madan Sabnavis, chief economist at Care Ratings Ltd. said by phone.

Inflation accelerated from as low as 1.46 percent in June to 5.07 percent in January. The central bank's goal is to keep headline inflation close to 4 percent over the medium term.

The composite index fell to 49.7 in February from 52.5 in the previous month as the drop in service sector activity outweighed an upturn in manufacturing production showed by a survey last week. Despite unfavorable demand conditions, businesses raised their staffing levels in February and remained confident about output growth over the next 12 months, the report said.

--With assistance from Anirban Nag

To contact the reporter on this story: Vrishti Beniwal in New Delhi at vbeniwal1@bloomberg.net.

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Unni Krishnan

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