Services sector under pressure, shows tepid growth in September

Services grew slowly in September as the pace of new orders moderated amid competitive pressure and unfavourable weather conditions, says a survey.

The Nikkei India Services Purchasing Managers' Index, which tracks services sector companies on a monthly basis, stood at 52 in September, down from August's 43-month high of 54.7, pointing to a slower and moderate rate of expansion.

A reading above 50 means the sector is expanding while a reading below that points to contraction.

"Service sector performance in India continued to improve relatively modestly in September, a trend that has been evident throughout the year-to-date," said Pollyanna De Lima, economist at IHS Markit that compiles the data and author of the report.

As per the survey, though the level of new business placed with Indian services firms increased moderately in September, panelists mentioned competitive pressure and unfavourable weather conditions as factors weighing on incoming new work.

Reflecting softer expansion in activity at the end of both service providers and manufacturers, the seasonally adjusted Nikkei India Composite PMI Output Index fell to 52.4 in September, from August's 42-month high of 54.6.

"Nonetheless, the latest above-50 reading was the 15th in as many months, highlighting ongoing growth in the country," the survey said.

The PMI Composite Output Index posted its highest reading since the January-March 2015 quarter, suggesting a pick-up in GDP growth.

"This would be welcome by policymakers after the below-expectations figure of 7.1 per cent y-o-y recorded in Q1," Lima said.

On Inflation, the survey said prices charged were raised in line with the higher cost burden.

"Food and petrol prices continued to climb in September, which placed pressure on operating costs. In response, private sector companies raised their own prices for the second straight month although inflation remained relatively soft," Lima added.

The Reserve Bank on Tuesday reduced the short-term lending rate (repo) by 0.25 per cent to a 6-year low of 6.25 per cent in this fiscal's fourth bi-monthly monetary policy statement.

On the employment front, the survey said both services and manufacturing firms reported stagnant staffing levels so far this year, but given the higher backlog of work across the private sector, businesses may be more willing to take on additional workers.

"The ongoing upturn in new work combined with muted employment growth led to backlog of work across the private sector... As a result of this, businesses may be more willing to take on additional workers as we head to the year-end," Lima said.