India’s service sector activity fell to a six-month low in September due to inflationary pressure and competitive conditions, said the S&P Global India Services Purchasing Managers’ Index released on Thursday.
The index fell to 54.3 in September as compared to 57.2 in August, in the weakest expansion rate since March. A score above 50 indicates expansion while a score below 50 denotes contraction.
The Purchasing Managers’ Index is an indicator of business activity in the manufacturing and services sectors. S&P Global said that it takes into account new orders, output, employment, suppliers’ delivery times and stocks of purchases to calculate the index.
The country’s service sector, however, reported an expansion in output for the 14th straight month, the report said.
“The Indian service sector has overcome many adversities in recent months, with the latest PMI data continuing to show a strong performance despite some loss of growth momentum in September,” said Pollyanna De Lima, the economics associate director at S&P Global Market Intelligence.
De Lima said that companies in India continued to take on extra workers to accommodate rising demand and that there was also a broad stabilisation of input cost inflation.
“However, the steep depreciation of the rupee seen towards the end of the month due to interest rate hikes in the US present additional challenges to the Indian economy,” she said.
The associate director said that imported items will become more costly due to currency instability, due to which the Reserve Bank of India is likely to continue hiking interest rates in order to protect the rupee and contain price pressure.
On September 30, the Reserve Bank of India had increased the repo rate by 50 basis points to 5.9% to combat inflation. The repo rate is the interest rate at which the central bank lends money to commercial banks.
This was the fourth hike in the repo rate since May.
The S&P Global India Manufacturing Purchasing Managers’ Index release on Monday had shown that India’s factory growth in September was the slowest since June but its output continued to expand.
The Manufacturing Purchasing Managers’ Index had fallen to 55.1 in September from 56.2 in August.
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