September 2019: Service Sector Activity Falls

Service sector activity in the country contracted to its lowest levels in 18 months in September and business confidence hit a 31-month low, impacting job creation in the industry.

IHS Markit India Services Business Activity Index slipped to 48.7 in September, indicating a contraction, from 52.4 in August. Panellists attributed the downturn to weak client demand, competitive pressures and challenging market conditions.

The index remaining above 50 indicates growth while a score below that mark means contraction.

Dismal activity in the services sector adds to the gloomy economic narrative which was corroborated by the Reserve Bank of India sharply cutting its economic growth projection to 6.1% for 2019-20 from 6.9% earlier in its monetary policy review.

The central bank also cut policy lending rates by 25 basis points, the fifth consecutive rate cut this year, aggregating to 135 bps to boost a slowing economy. One basis point is one-hundredth of a per cent.

A sister survey had showed manufacturing activity in the country remaining unchanged from August and posting its joint lowest reading since May 2018.

Put together, the growth of Indian private sector activity came to a halt in September, ending a oneand-a-half-year sequence of expansion, with the Composite Purchasing Managers’ Index Output Index falling to 49.8% from 52.6 in August.

Business activity stalled in finance and insurance due to a contraction in new work. Real estate and business services was another key source of service sector weakness. Consumer services was the best performing sector, leading growth of output and new work.

Indian services companies were able to secure new work from external markets. The increase in international orders was the seventh in consecutive months, with growth accelerating from August.

Services firms signalled higher payroll numbers in September, with the current sequence of job creation extending to 25 months. However, the pace of employment growth was marginal and softened to the slowest since June, the IHS survey said.

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