The services sector, the largest contributor to India’s gross domestic product (GDP), contracted for the sixth consecutive month in December as orders declined, according to a HSBC survey.
The HSBC PMI Index shrank to 46.7 in December from 47.2 in November. A reading above 50 indicates growth while anything below 50 denotes a contraction.
The index has been sliding since July and the latest data show the fastest drop in the October-December period. However, the good news is that hiring has risen.
“The services sector continues to face headwinds, with weakening new business dragging down activity,” said Leif Eskesen, Chief Economist for India and Asean at HSBC. But he noted that inflation pressure was easing and optimism about the coming year rising.
The HSBC survey, based on opinions gathered from purchasing managers, noted complaints from respondents about tough economic conditions.
Composite drop The manufacturing index is already down and now with services slipping, the composite index for December dipped to 48.1 from 48.5 in November. It was below the 50 threshold for the sixth successive month.
Still, business expectations are rising. “Inflation continues to ease for services, which may compel the RBI to pause again in January if this is also borne out by the CPI and WPI numbers released later this month,” the survey said. “However, inflation levels are too high for comfort and underlying inflation is unlikely to subside notably in the near term. The RBI will consequently need to keep its inflation guard up,” it added.
Four of the six broad areas of the service economy registered lower volumes, while new business contracted in five categories. The sharpest decline in new orders was noted in the ‘hotels and restaurants’ segment. The post and telecommunication sub-sector remained resilient, with growth in business activity and new orders.
Outstanding business for service providers and manufacturers rose in December, leading to further accumulation of unfinished work in the private sector.
December data also indicated that private sector employment rose. The latest increase in payroll numbers was broad-based, with both manufacturers and service providers adding jobs.
Service providers remained upbeat about the prospects for business activity in 2014. Furthermore, the degree of confidence was the strongest in five months.
Positive sentiment was linked by companies to forecasts of better economic conditions and hopes of higher demand. Some firms also said output is expected to grow after the elections.