NEW DELHI: The index, based on responses from 350 purchasing managers, came down to 49.6 in May from 52.5 in April. Although indicative of falling output, the latest reading pointed to a marginal rate of contraction.
Leading services activity to decline was a reduction in incoming new work, the first since April 2014. Competitive pressures and natural disasters were blamed for the decrease in new business inflows. Index below 50 shows contraction and above 50 shows expansion. This data is significant as Services contributes over 57 per cent in overall Gross Domestic Product (GDP).
May data indicated that business conditions in the Indian service sector deteriorated. Both output and new orders contracted for the first time since April 2014, with some respondents indicating that the earthquake and extreme heat hampered demand. Inflationary pressures gained strength, with costs and charges rising at quicker rates. On the positive side, firms took on extra staff over the month and sentiment regarding the 12-month outlook for business activity improved.
Service providers’ optimism was maintained during May, as improved marketing strategies and better economic conditions are expected to lead to business activity growth over the course of the next year. Although, the strongest in four months, the level of confidence was weaker than the series average.
Commenting on latest data, Pollyanna De Lima, Economist at Markit (the compiler of PMI data) said that disappointing May PMI data for India services indicated that the sector fell back into contraction after experiencing growth for six successive months. Restrained demand accompanied by sweltering heat and the earthquake led to falling new work. “Nonetheless, the sector is expected to see a rebound in coming months, as these factors fade away. An upturn in employment combined with improved business confidence further add to the evidence that prospects may brighten,” she said.
