The pace of activities in the services sector softened for a third straight month and hit a one-year trough in May, as election-related uncertainties had weighed on fresh orders. The seasonally-adjusted Nikkei India Services Business Activity Index, published by IHS Markit, hit 50.2 in May, against 51 in April. A reading above 50 suggests expansion, while the one below it signals contraction.
Inflows of new business orders at service providers rose at the slowest pace in eight months. Services sector firms indicated that delayed client payments prevented them from working on their outstanding business. Although backlogs have increased throughout the past three years, the accumulation recorded in May was the weakest, according to the survey.
The data comes at a time when GDP growth hit a five-year low of 5.8% in the March quarter, with investment growth having collapsed. The subdued business activity in the services sector, however, was offset by better performance of manufacturing, which touched a three-month peak in May. This kept the seasonally-adjusted Nikkei India Composite PMI Output Index at 51.7 in May, unchanged from April.
However, there were signs that the slowdown may prove temporary as companies stepped up hiring and became more confident about future prospects. Firms were also helped by a lack of inflationary pressures in the sector, according to a statement by IHS Markit.
Employment in the services sector has increased for 21 months running and the rate of job creation was solid and faster than seen on an average over the survey history. With factories also lifting headcounts, private sector jobs in India expanded at the fastest pace since February.
Input costs rose at the slowest pace in close to two-and-a-half years. With inflation also subdued in the manufacturing industry, aggregate input prices displayed the weakest rise in just under three years. Pollyanna De Lima, principal economist at IHS Markit, and author of the report, said: Signs that we may see a revival in the service sector in the near-term were, however, evidenced by a pick-up in hiring activity and improved sentiment. Also supportive of greater client spending and investment among businesses is the evident lack of inflationary pressures.