Services sector contracts in August

Activity in India's key services sector contracted for the second consecutive month in August as anxiety over the GST took toll. However, the seasonally adjusted Nikkei India Services PMI Business Activity Index registered 47.5 in August, rising from 45.9 in July. The latest figure was indicative of a softer rate of reduction that was moderate overall. The 50-point mark separates expansion from contraction.

The government implemented GST from July 1 and manufacturing activity data for July had displayed some stress due to de-stocking by companies ahead of the release of the tax measure. But the situation on the ground is improving with companies reverting to pre-GST level stocks. More clarity about the tax measure has also helped remove some of the initial anxiety among businesses.

Activity in the sector had contracted shortly after the government had scrapped some high value notes in November last year. Latest data shows the economy grew at its slowest pace over three years at 5.7% in the June quarter, triggering calls for more reform measures to revive growth.

PMI survey showed that jobs were cut, due to fewer workloads, and backlogs were accumulated. A slightly quicker rise in cost burdens was registered, whereas output charge inflation softened from July's recent peak. Companies remained optimistic towards growth prospects, though overall sentiment fell, it said. The trend for services activity mirrored that for new business, which decreased for the second month in a row but at a slower rate.

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