India’s Services sector activity suffered sharp contraction in November after government’s demonetisation move, as new business declined for the first time since June 2015, leading to a solid reduction in activity. Also, backlogs of work rose, while employment increased only marginally. Ending a 16 month sequence of expansion, the seasonally adjusted Nikkei India Services Business Activity Index contracted steeply to 46.7 in November from 54.5 in October. The index has registered a contraction for the first time since June 2015 and marked the sharpest reduction in output in almost three years.
Factory production rose further during the month, but the rate of growth eased. The seasonally adjusted Nikkei India Composite PMI Output Index dipped to 49.1 in November from October’s 45-month high of 55.4, pointing to a slight contraction in private sector activity overall. According to the report, many surveyed companies commented that the cash shortage restricted client bookings. The currency scarcity also weighed on manufacturing performance where growth of new work flows slowed.
Further, service providers recorded higher levels of outstanding business in November, which they commonly associated with delayed payments from clients. Similarly, unfinished work at manufacturers increased at a softer pace. 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. As per the report, a reading above 50 indicates economic expansion, while below that points towards contraction.