Companies less positive of future business: HSBC survey.
By R. Chandrasekaran
CHENNAI: India’s services sector Purchasing Managers’ Index (PMI) suffered the worst in over four years in July. This comes on the heels of the fall in manufacturing output for the same month.
The HSBC Market Services PMI dropped below the psychological level of 50 to read 47.9 in July from 51.7 in June. This is the first time that the index is reading below the 50 mark thus contracting for the first time in 20 months after October 2011. Any reading below 50 is considered contraction. The factory output has managed to be modestly higher at 50.1 but the threat of contracting looms large.
The HSBC survey indicated that the companies were less positive of their future business since new business contracted for the first time in July in more than four years’ time. The HSBC India Composite Output Index that record both manufacturing and services activity registered a fall in July to 48.5 from 50.9 in the previous month.
The service sector represents approximately 60 percent of the Indian economy. This suggests that consumers are tightening their purse strings amidst rising costs or food inflation and the chances are that it could see further downside pressure since the Reserve Bank of India has tightened the money policy, reducing money supply and limiting the spending both by corporate as well as consumers.
Commenting on the services PMI, HSBC chief economist for India Leif Eskesen has reportedly said, “Activity in the service sector contracted in July led by a drop in new business, which also led to a decline in optimism among the surveyed companies.”
The Indian economy rose at the lowest pace of 5 percent in a decade in the fiscal year ended March 2013. The government had kept an ambitious target of 6.5 percent for the current fiscal year but the Prime Minister Dr. Manmohan Singh has recently admitted that the government will fall short of this target.
The recent fall in the Indian currency has clearly upset all the calculations of the government as well as the central bank, which was looking to ease money supply to spur growth before the currency’s volatility. Now the RBI focus is on stabilizing the Indian rupee.
To contact the author, email to rchandrasekaran@americanbazaaronline.com