Services sector activity in the country dipped for the second straight month in May and was the weakest since November 2015. The Nikkei Services Business Activity Index fell to 51 in May from 53.7 in April.
“New business inflows expanded at the slowest rate since July 2015,” said a release on Friday.
A reading above 50 represents expansion while one below this level means contraction
Meanwhile, the Nikkei India Composite PMI Output Index, which maps both manufacturing and services sectors, fell to a six-month low of 50.9 in May, from 52.8 in April.
“Latest PMI numbers raise doubts about the effectiveness of economic and monetary policies,” Pollyanna De Lima, economist at Markit, which compiles the survey, said.
Manufacturing growth eased in May, which combined with the slowdown in services resulted in a weaker increase in private sector output, the survey said.
Lima further said that “Ongoing weakness in manufacturing and services was evident in May, with output growth losing momentum for a second straight month. Overall expansion across the two sectors was the lowest since last November, as was the case for new orders.’’
Degree of optimism
Meanwhile, the confidence of service providers dipped to a three-month low. Though services companies expect output to increase over the coming 12 months, the degree of optimism weakened to the lowest since February.
“The gloomy growth picture will be a concern to policymakers and will raise the chances of further cuts in interest rates by the RBI,” Lima said, adding “this would be supported by subdued inflationary pressures, with May data pointing to weaker increases in both costs and charges.’’
Rate cut
Earlier in April, the RBI had cut its policy rate by 0.25 per cent to 6.5 per cent. While this was the first rate cut after a gap of six months, the RBI has lowered its rate by 1.5 per cent cumulatively since January 2015.
However, the industry still wants further rate cuts from the apex bank to boost investment.
Meanwhile, the Indian economy grew at 7.9 per cent in the fourth quarter of 2015-16 taking the overall GDP growth to a five-year high of 7.6 per cent in the fiscal.