Showing similar trend to the contraction in manufacturing sector, activity in India's dominant service sector too contracted in the month of July to its lowest level since September 2013, on the back of the implementation of the goods and services tax (GST). The seasonally adjusted Nikkei Services Business Activity Index fell to 45.9 in July from 53.1 in June. The Nikkei India Composite PMI Output Index which measures both manufacturing and services also plunged to 46.0 in July from 52.7 in June.
The report also signaled the first downturn in output and new work since January which had an adverse effect on the labour market, with employment contracting over the month. Similarly, factory orders decreased in July and at the quickest pace since February 2009. The report further said that outstanding business in the service economy rose to the greatest extent in five months.
On the price front, services charges rose at the sharpest rate in almost four and a half years during July, while manufacturers offered discounts in order to stimulate demand. As per survey report, even though the higher tax rates and salaries awarded to staff resulted in another monthly increase in input costs, the rate of inflation softened since June, remaining well below its long-run average and the factory charges were also dropped first time in 17 months. However, Indian service providers exhibited optimism towards the 12-month outlook for activity, with hopes of a better understanding around the new tax regime boosting confidence.
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