India's services sector contracts in September on weak demand; business optimism at its lowest in 2.5 years

Bengaluru: India’s dominant services sector slipped into contraction in September as new business orders fell for the first time since early 2018, according to a private survey which also found business optimism at its lowest in 2-1/2 years. Friday’s survey adds to the deepening gloom around businesses and consumers, underlining the broadening cracks in the economy as growth slipped to six-year low in the April-June quarter. The IHS Markit Services Purchasing Managers’ Index fell to a 19-month low of 48.7 in September from 52.4 in August. It was the second month this year the index had fallen below the 50-mark separating growth from contraction—the last one being in June. A manufacturing survey earlier this week also showed a cooling in activity. “The bad news of a cooling manufacturing sector was compounded by an outright services downturn in September,” Pollyanna De Lima, principal economist at IHS Markit, said in a release. The weak manufacturing and dismal services sector activity dragged down the composite PMI to just below the 50-mark for first time since February 2018. Moreover, the outlook held out little hope for a turnaround anytime soon either, with an index tracking overall demand for services falling to 48.8 in September, a 19-month low. [caption id=“attachment_4496675” align=“alignleft” width=“380”]  Representational image. Reuters.[/caption] India’s economy has been hobbled by a demand slump, prompting policymakers to step up fiscal and monetary stimulus to revive growth. The Reserve Bank of India, which has already slashed rates by 110 basis points so far this year on the back of the low growth and below-target inflation, is expected to ease further later on Friday. Yet, despite the supportive measures firms do not appear convinced the services sector will emerge from the slump anytime soon, the survey showed. Optimism about the next 12 months was the lowest in 2-1/2 years. “Policymakers will hope that monetary and fiscal stimuli can boost domestic demand as well as business investment, thereby restoring economic growth in the months to come,” De Lima said. “A drop in aggregate input cost inflation to its lowest in around three years raises the possibility of a further cut in the benchmark interest rate.” Input costs grew at the slowest pace in over 2-1/2 years last month but firms raised prices to clients a touch faster than they did in August. Exports grew slightly faster than in August, cushioning the blow somewhat and allowing firms to increase headcount, albeit at the slowest pace in three months.