Services' PMI

The services sector began the new financial year on a dismal note, as the HSBC Purchasing Managers’ Index for services sector for April grew at its slowest pace in one-and-a-half years at 50.7 points, compared with 51.4 in March, suggesting that the economy continued to struggle. The slowdown in services that makes up nearly 60% share in GDP does not augur well for the economy as it comes after data last week showed manufacturing activity had also lost steam with persistent power cuts. The PMI manufacturing index fell to 51, the lowest in 17 months.
The services index was close to the 50-point mark that separates expansion from contraction. PMI services had contracted in September and October 2011 with the index standing at 49.8 and 49.1, respectively. Apart from slow pace of orders, the third straight month of decline in services was also a result of extreme weather and challenging market conditions, noted the report based on the survey of over 350 private firms.
The pace of hiring by private sector companies was the slowest in seven months. The incoming new work across the private sector expanded at the slowest pace in 17 months.
Demand for Indian services has been hit due to economic crisis in the Euro zone, specially the outsourcing deals for Indian software companies.
Service providers pointed out that delayed payments from clients had resulted in increased levels of unfinished business, whereas manufacturers linked the accumulation to persistent power cuts.
The composite output index, which takes into account both manufacturing and services stood at 50.5 points in April, against 51.4 points in March. Services sector has seen a sharp deceleration in growth, from 8.2% in 2011-12 to 6.6% in 2012-13.
To induce demand and investment in the economy, RBI cut repo rate by 25 basis points to 7.25% last week, the third cut in the calendar year, bringing the interest rate at par with May 2011 level. It will also go for open market operations of government bonds on Tuesday to infuse liquidity into the system. Inflation based on the wholesale price index eased to 5.96% in March this year, allowing the central bank to withdraw the contradictory monetary policy.
Input prices witnessed further increase in April --the trend continued for the 49th consecutive month --and cost of raw material, petrol and labour were higher, HSBC noted.
Output prices also increased, with the overall rate of charge inflation moderate and the slowest in 30 months. The rates of increase in average selling prices were slower at both manufacturers and service providers.