India services activity drops to the lowest level in six months

INDIA’S services activity lost momentum in September, rising at the slowest pace in six months as inflationary pressures restricted output and dampened job creation.

S&P Global India Purchasing Managers Index for services declined to 54.3 last month as new business inflows softened, data showed Thursday (Oct 6). That’s the lowest reading since March and compares with 57.2 in August. A number above 50 reflects an expansion while a print below that depicts contraction in activity.

“An upturn in inflation could damage consumer spending, dampen business confidence and test the resilience of the Indian service sector in the coming months,” said Pollyanna De Lima, an economics associate director at S&P Global Market Intelligence, adding that the steep depreciation of the rupee brings additional challenges for the economy as imports become costlier.

The Reserve Bank of India also raised its key policy rate last week by 50 basis points, taking cumulative increases this year to 1.9 percentage points, to return inflation within its 2 per cent-6 per cent target.

While weak external demand weighed on overall sales with a further decline in international orders, service providers also signalled an increase in operating expenses due to to higher energy, food, labour and material costs. Despite that sales growth forecasts boosted business confidence with sentiment at its highest level in over seven-and-a-half years. BLOOMBERG