Services output hits six-month low in October

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India's services sector slowed in October –– registering the slowest pace of growth since April –– amid decline in new orders and hiring levels, an HSBC survey said.

The HSBC’s Services Purchasing Managers Index (PMI) for October declined significantly to 53.8 in October from 55.8 in September. Since November 2011, the index has kept above the 50-mark, which indicates expansion. Thus, the HSBC India Composite Output Index, which maps both services and manufacturing activity, stood at 53.5 during the month, down from September reading of 55.

“The services sector slowed in October, but remained firmly in expansionary territory. Growth in new orders eased slightly and firms scaled back the pace of hiring,” HSBC chief economist for India and Asean Leif Eskesen said.

Output in the Indian service sector increased, amid reports of stronger demand and the rate of expansion, though “solid”, was slowest since April. However, service providers remain optimistic about the short-term business outlook.

Earlier, an HSBC survey had shown that India’s man­ufacturing sector improved in October, driven by new orders, but persistent power shortages weighed on production.

Moreover, the outstanding business rose reportedly due to delay in payments in October, which to some extent could also explain the slower pace of growth in business activity, Eskesen said. “Inflation readings continued to tick up, with higher raw material costs and solid demand keeping inflation pressures firm. The latter explains why RBI remains hesitant about easing monetary policy,” he added.

Inflation as measured by all indices has remained elevated and WPI-based inflation has remained above RBI’s comfort zone of 5 to 5.5 per cent for quite some time. In the mid-year monetary policy review, RBI left key interest rate unchanged but reduced CRR by 0.25 per cent to infuse additional liquidity of up to Rs 17,500 crore into the system.

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