India services PMI drops to 51.7 in June as new business weakest in 2 years.

NEW DELHI: The pace of growth in India's services sector shrank sharply in June on deceleration in new business, a private survey showed, signaling that sustained economic recovery is yet to set in. The seasonally adjusted HSBC Purchasing Managers' Index (PMI) for services posted a reading of 51.7, compared with May's threemonth high of 53.6, data released on Wednesday showed. "Service sector activity grew at a slower clip as new business flows moderated, which made businesses less optimistic about the year ahead," said Leif Eskesen, chief economist at survey sponsor HSBC, in a release.

The services sector, which accounts for about 60% of the GDP, has been under-performing due to sluggishness in the domestic economy, which expanded by 5% in 2012-13, the slowest in a decade. May had recorded a sharp pickup in services sector activity, but June's slump could be a sign that the economy is yet to see sustained pickup.

According to the Central Statistics Office, the sector's growth slowed to about 6.5% in 2012-13 from 8.2% in 2011-12. The PMI index, compiled by financial information services company Markit, is based on a survey of around 350 service sector firms that try and replicate the structure of the economy. A reading above 50 means expansion.

The sub-index for new orders dropped to a 20-month low of 51.9 from 53.2 in May. A similar survey on Monday showed manufacturing growth in June was flat at 50.3, as production fell for the first time since March 2009 due to low domestic demand and power outages. The composite output index, which takes into account both manufacturing and services, fell from 52.0 in May to 50.9.

According to the survey, the problem was compounding by the sharp fall in the rupee and an uptick in inflation. "Notwithstanding the slowdown, inflation readings firmed on the back of higher labour and raw material prices, with the depreciation of the rupee also cited as a factor," HSBC's Eskesen said. India's central bank had maintained a status quo on policy rates, as the depreciating rupee increases upside risks to inflation due to high import dependency, the survey said.

In June, input prices rose at the quickest pace in three months due to higher costs of raw material, labour and fuel, the survey added. There were also concerns due to unfavourable exchange rates. Volume of work-in-hand at service providers also rose marginally, with firms commenting on delayed payments from clients. Employment increased at faster rates across both the manufacturing and service sectors.

Source : economictimes.indiatimes.com