Services sector activity contracts

Activity in the country’s key services sector contracted in June for the first time in over a year, dragged down by stagnant sales, while job creation was at a 22-month low.

At 49.6 in June, down from 50.2 in May, the IHS Markit India services business activity index contracted for the first time since May 2018. The 50-point mark separates expansion from contraction. Survey participants attributed the decline to weak sales, competitive pressures and unfavourable taxation.

The latest data comes two days ahead of the budget, which is expected to unveil measures to boost growth. Several data points have pointed to a slowdown in the economy and all eyes are on FM Nirmala Sitharaman for steps to revive growth.

A sister survey had shown manufacturing activity in India losing momentum in June due to a softer increase in orders with the Nikkei India Manufacturing Purchasing Managers’ Index falling to 52.1 in June from 52.7 in May. Put together, the Nikkei India Composite PMI Output Index fell to 50.8 from 51.7 in May. As per the survey, hopes of an improvement in demand conditions and marketing efforts underpinned optimism among Indian service providers.

“That said, the overall level of positive sentiment weakened to a four-month low,” it said.

Sector-wise, real estate and business services firms witnessed a marked drop in new work in June, which led to a great decline in output and no growth in employment while finance and insurance businesses were the best performers, which saw strong job creation on the back of the fastest growth in output in the service sector.

Consumer services saw drop in business activity for the first time in 12 months, according to the report.

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