India’s service sector continued to contract in August, with the HSBC-Markit Purchasing Managers’ Index, or PMI, dropping to 47.6 in August, from 47.9 in July, prompted by a steep fall in new orders, which occurred at the fastest pace in more than four years.

HSBC’s composite output index, covering both manufacturing and services sectors, was down to 47.6 in August, from 48.4 in July, indicating a continued drop in activity due to falling volumes of new business and worsening economic conditions.

“Service sector activity slowed further in August led by weaker new business flows, which led to a slowdown in employment growth and a decline in sentiment among service sector companies,” Leif Eskesen, HSBC’s chief economist for India and ASEAN, said in a statement.

The level of optimism in the service sector weakened for the third consecutive month, the survey showed, with the index measuring business sentiment hitting a 17-month low.

Input costs in the private sector accelerated in August at the fastest pace in six months, and prices paid by services firms rose at a faster pace, while manufacturers saw a slowdown in cost inflation. Services were hit by a rise in prices of fuel, transport and labor costs, while manufacturers reported higher prices paid for imported materials, partially due to a rapidly depreciating currency.

Despite rising inflation and higher input costs, private sector firms buffeted by competition and falling demand, raised market prices only marginally in August.

“The numbers we have seen so far for July and August for both the manufacturing and service sectors point to a further slowdown in GDP growth during the third quarter,” Eskesen said.

In late-afternoon trade, India's benchmark BSE Sensex stock index was up 1.85 percent, after having fallen more than 3 percent on Tuesday, and the rupee was trading at 67.08 against the dollar, stronger than Tuesday's close at 67.63.