HSBC sevices PMI falls for second straight month in April

Services, the dominating sector  of India's economy, saw a  moderation of  growth for  the second consecutive  month in April as competition increased for new  work, showed a widely-tracked HSBC purchasing managers' index (PMI). This led to some companies shedding jobs. 

In fact, one of the segments of the economy--hotels  and restaurants--saw a contraction in April.  

PMI was  down to  52.4 points in April  from 53 in March. A reading above 50 shows expansion and one below implies contraction. 

With manufacturing PMI also declining in April  compared to March, HSBC India Composite PMI Output Index fell from 53.2 points in March to a six-month low of 52.5 in April, the first month of 2015-16.

Pollyanna De Lima, an economist at Markit Economics, which compiles PMI data, said,"The slowdown in the Indian service sector continued in April, with weaker activity growth reflecting softer demand conditions."

However, Markit Economics said  services new orders rose during April, reflecting stronger demand conditions and improved marketing strategies. "That said, the growth rate eased toa  modest pace, with panellists reporting increased competition for new work," it said. 

April data highlighted falling payroll numbers in the Indian  service sector.  However, the rate of  job cuts was only fractional. Employment levels at the private sector  have remained  largely unchanged  for over one year. 

Pollyanna said job-shedding returned as companies maintained a cost-cautious approach.

Unfinished business levels at services firms increased during April. Despite being moderate, the rate of backlog accumulation was the most pronounced since last October. 

Postponed payments from clients was the main reason provided by survey participants for the latest rise in outstanding work. Across the private sector, overall volumes of incomplete business rose, albeit slightly.

In line with rising raw material costs, average input prices in the Indian service economy increased further in April. Nonetheless, the rate of inflation was moderate overall as less than 5 per cent  of panelists reported rises. 

Inflation to consumers in the service economy softened in April and was historically muted, while goods producers reduced their tariffs in an attempt to secure new business. Average selling prices across the private sector as a whole increased at a negligible rate that was the weakest since October 2010 and below its long-run average.

“Inflation rates for both input and output prices were weak by historical standards, providing the RBI with more scope for further rate cuts," the Markit economist said. 

An expansionary approach to monetary policy would, at a time when the economy is losing traction, provide much needed support for further growth, Pollyanna said.