India's Service Sector Debilitates in August, PMI Declines to 52.4

India's services industry has expanded in August but at a slower pace due to softened demand

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India's otherwise dominant services industry has expanded in August but at a slower pace due to softened demand. The IHS Markit Services Purchasing Managers' Index declined to 52.4 from 53.8 in July, so far year’s highest. However, the PMI parlance is still comfortably above the 50-mark, separating growth from contraction.

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Manufacturing Industry Follows Suit

"The weaker PMI readings for India's service sector match the trend noted in the manufacturing industry, bringing unwelcome news of a cooling economy halfway through the second quarter of the fiscal year 2019-20," said Pollyanna De Lima, principal economist at IHS Markit.

The IHS Markit India Composite PMI Output Index, which maps both the manufacturing and services industry, fell from 53.9 in July to 52.6 in August, hitting a 15-month low. As the new business inflow pace down, the job creation and output expansion have also moderated. While the Private sector jobs rose in August, the pace of expansion was slower.

"Although the two surveys combined point to another round of job gains, a retreat in the rate of employment expansion highlight a wait-and-see approach among businesses who are longing for a meaningful and sustained pick-up in demand growth," Lima said.

Falling Demand, Gaining Optimism

Overall demand in the services industry fell sharply from a near three-year high in July of 53.9 to 51.0 last month, leading firms to increase hiring at a slower rate. Despite a decline in input price inflation, services companies lifted their selling prices again in August.

Meanwhile, India's GDP growth fell to 5 percent in the June quarter, its slowest in more than six years. The growth of eight core industries dropped to 2.1 percent in July, mainly due to contraction in coal, crude oil and natural gas production. Despite the overall inflation, one can find rebound in business sentiment.

"Both manufacturers and service providers believe that supportive public policies can help shift growth momentum into a higher gear in the coming 12 months," stated De Lima. Muted price pressures and an economic slowdown are expected to prompt further easing of monetary policy by the RBI. The central bank has already cut a cumulative 110 basis points this year.

Aastha Singal

Written By

Entrepreneur Staff

A business journalist looking to find happiness in the world of startups, investments, MSMEs and more. Officially started her career as a news reporter for News World India, Aastha had short stints with NDTV and NewsX. A true optimist seeking to make a difference, she is a comic junkie who'd rather watch a typical Bollywood masala than a Hollywood blockbuster.