A day after Fitch Ratings lowered its growth estimate for Indian economy, saying the rebound in economy appears to be weak, the widely tracked Nikkei purchasing managers' index (PMI) on Tuesday showed that the services sector slipped into the contraction zone in November.
The reading for November fell to 48.5 from 51.7 in October.
The new GST, which was implemented from July 2017, was the main contributing factor to a slow demand as well as lower customer numbers during the month of November. "It is possible that a predominance of the unorganised sector in services, where business models have been shaken by the implementation of the GST, is facing greater challenges", Japanese brokerage house Nomura said in its note.
Meanwhile, cost pressures intensified during the latest survey period. Earlier, the Nikkei India Manufacturing PMI for November came in at 52.6, the highest reading since October 2016.
That's down from the 26-month high of 53.4 in October, although it remains well above the boom-or-bust line of 50 that separates expansion from contraction. As with the case with activity, the rate of contraction in new work was modest.
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"With growth in manufacturing production offsetting the fall in services activity, private sector output rose for the third consecutive month in November". On the employment front, despite unfavourable demand conditions, service providers continued to add to their workforce.
The poor activity in the services sector is also borne out by official data released by the government.
Input prices faced by Indian service providers continued to rise in November.
The PMI figures are little surprising as data released last week, by the Central Statistics Office showed that India grew at 6.3 percent for the quarter ended September, from its three-year low of 5.7 percent in last quarter, as businesses adjusted to the new GST tax regime. "In fact, input cost inflation accelerated to the fastest since October 2013", according to the report.
Prices of food and fuel increased over the month. Moreover, higher taxation led to an increase in overall input prices.
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