HSBC Services PMI growth in India eases to three month low

06 May 2015 Evaluate

Slowing down to a three month low, the seasonally adjusted HSBC India Services Business Activity Index pointed to a modest and softer rise in output across the sector on account of softer domestic demand. The slower rise in service sector activity was matched by a softer increase in manufacturing production. The HSBC India Services Business Activity Index, which tracks changes in activity at Indian service companies on a monthly basis, eased to 52.4 in April from 53 in March, indicative of a moderate rate of expansion that was slightly weaker than in the prior month as a score above ‘50’ indicates that the sector is expanding, while a figure below that level means contraction.

With manufacturing PMI also declining from March to April, HSBC India Composite PMI Output Index fell from 53.2 points in March to a six-month low of 52.5 in April, the first month of FY 2015-16. April data highlighted falling payroll numbers in the Indian service sector. However, the rate of job cuts was only fractional. Employment levels at the private sector have remained largely unchanged for over one year.

Also, unfinished business levels at service firms increased during April mainly on account of postponed payments from clients. Across the private sector, overall volumes of incomplete business rose, albeit slightly.

On the inflation front, in line with rising raw material costs, average input prices in the Indian service economy increased further in April. Nonetheless, the rate of inflation was moderate overall as less than 5% of panellists reported rises. On the flip side, output charge inflation in the service economy softened in April and was historically muted.

Thus, with inflation softening and the growth in manufacturing and service sector softening, the industry is demanding further easing of interest rates to boost growth. Last month, the Reserve Bank had surprisingly reduced the benchmark interest rate by 0.25 per cent to 7.5%.

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