India's services activity contracted for the second straight month as the economy continues to reel from the impact of the Goods and Services Tax rollout.
Nikkei India Services Purchasing Managers' Index stood at 47.5 in August, an increase from July's 45.9. Yet, it stayed below 50, which denotes contraction. While service providers maintain an optimistic outlook for the year ahead, the overall sentiment remained subdued last month, the report said.
It's not all doom and gloom, however, as activity, new business and employment (in services) showed much slower rates of reduction than those noted in the prior survey period.Pollyanna De Lima, Author of Report, Principal Economist at IHS Markit
The August trend signified a softer rate of reduction as private sector continued to underperform and price indicators signalled discrete inflationary pressures, the report said.
The services activity contrasts growth in India's manufacturing sector in August as it inched to 51.2 from 47.9 in July. Yet, that could not push the composite PMI above 50 for the month. It stood at 49, up from July's 46 level.
Overall contraction, though at a slower pace, comes after the gross domestic product grew at a slower pace of 5.7 percent in the quarter ended June, weighed down by a slowdown in manufacturing.
Key Takeaways From August Services PMI Data:
- Less workload resulted in increasing layoffs and accumulating backlogs, which was the most since February.
- Across the private sector, work-in-hand increased to the greatest extent since February.
- Payroll numbers in the service economy decreased amid evidence of the non-replacement of voluntary leaves.
- Analysts cited muted demand, competitive pressures and GST impact as the reason for services' decline.
- Factory orders returned to expansion territory in the month.
- Input costs rose at a faster pace, even though they were below the long-run average rate.
- Output charge inflation softened from July's 53-month peak.
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