Service sector activity slips for 2nd straight month; employment rises

New Delhi: The country's services sector activity fell for the second straight month in January, as new orders rose at the slowest rate in four months; despite which companies continued to hire staff, a monthly survey said on Tuesday.

The seasonally adjusted Nikkei India Services Business Activity Index fell from 53.2 in December to 52.2 in January, indicating a softer expansion in output.

Despite easing marginally, the services PMI was in the expansion territory for the eighth straight month. In PMI parlance, a print above 50 means expansion, while a score below that denotes contraction.

"Expansion rates in the Indian service sector have been at similarly modest levels for the past four months, with January data extending the recent trend," said Pollyanna De Lima, Principal Economist at IHS Markit, and author of the report.

Lima further noted that there is some sign that growth may run out of steam, in the short-term at least, as seen by the weakest improvement in demand for four months and relatively subdued optimism.

According to the survey, a key factor restricting the rise in services activity was a softer expansion in new work and a moderate increase in sales, that was the weakest in four months.

Meanwhile, services employment continued to expand, with job creation at a three-month high.

"The increasing willingness of companies to hire workers should help reduce still high levels of unemployment in the country," Lima said.

On the prices front, a softer increase in prices charged for the provision of services was evident in January, with 97 per cent of firms leaving their fees unchanged during the month.

According to experts, the signs of easing inflationary pressures indicate that the Reserve Bank of India (RBI) is likely to adopt an accommodative monetary policy stance.

RBI's Monetary Policy Committee is currently underway and the outcome of the meeting is scheduled for February 7.

Meanwhile, the seasonally adjusted Nikkei India Composite PMI Output Index, that maps both the manufacturing and services industry, was at 53.6 in January, unchanged from December, and indicative of a solid expansion in private sector activity.

"Output growth in the private sector held steady for now, supported by a strengthening manufacturing industry. Should data for services carry on a downward path, we could see a slowdown in GDP expansion in the final quarter of FY18," Lima said.

Meanwhile, the government on January 31, revised the economic growth rate upwards to 7.2 per cent for 2017-18 from the 6.7 per cent estimated earlier, mainly driven by performance of farm sector.