India Service Sector PMI Growth Drops To Six-Month Low

HSBC's services PMI -- an index of Indian services sector activity – fell to 53.8 in October, a two-point decrease from 55.8 in September.  The deceleration in the service sector, which has remained positive in the past seven months, indicates a downturn. However, the index has remained above 50 points, indicating growth since November 2011. Any reading below the 50-point mark in the index signals a contraction.

The index for the services sector, which constitutes nearly 60 percent of the Indian economy, is measured based on a survey of 400 companies.

"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," said Leif Eskesen, an economist at HSBC.

The data depict a decrease in new orders as the slowdown in the West has dampened the demand for Indian services. The pace of job creation also slowed down reflecting the trend while the employment sub-index fell to a five-month low, data show.

The inflationary trends showed an upward movement in line with the country’s benchmark inflation.  Both the input and output prices sub-indexes went up to their four- and three-month highs, respectively, the survey said. A high inflation level in the country is unlikely to cool anytime soon, according to data, restricting RBI's room for monetary easing.  

Surging fuel prices and labor costs pushed input and output prices sub-indexes to four- and three-month highs, respectively, the survey found.

"Inflation readings continued to tick up, with higher raw material costs and solid demand keeping inflation pressures firm," Eskesen said, as reported by Reuters.

"The latter explains why the Reserve Bank of India remains hesitant about easing monetary policy."

Meanwhile, a survey by HSBC Nov. 1 showed that India's manufacturing sector improved 0.1 percent in October from the 10-month low in September, aided by an increase in new orders.