Demonetisation Hits January Services Growth

Mumbai: Impacted by the recent demonetisation measure, India's services sector contracted for the third successive month in January, revealed key macro-economic data on Friday.

Indian service providers continued to be impacted by the central government's November 8 demonetisation with the Nikkei Services Purchasing Managers' Index (PMI) standing at 48.7 in January, as compared to 46.8 in December 2016.

An index reading of above 50 indicates an overall increase, while below 50 an overall decrease.

The PMI series of data are published by the leading global diversified provider of financial information services "IHS Markit".

"India's pivotal services sector remained in contraction territory in the opening month of 2017, with both new business and activity falling for the third straight month," said Pollyanna De Lima, economist at IHS Markit and author of the report.

"The downturn in service sector activity across India softened during the opening month of 2017, with the slowdown reflecting a weaker contraction in new business inflows," the report said.

The survey showed that input cost inflation slowed since December, while average selling prices contracted again, which may prompt the Reserve Bank of India (RBI) to be "accommodative" at its forthcoming monetary policy review due next Tuesday.

"PMI price indicators point to relatively muted inflationary pressures in the private sector economy. As such, there is room for accommodative monetary policy," De Lima said.

"A rebound in the near-term is likely as rates of reduction softened and business confidence improved on the back of hopes that market conditions will soon normalise," she added.

Besides, as per the Markit report, the seasonally adjusted Nikkei India Composite PMI Output Index rose to 49.4 in January from a 38-month low of 47.6 in December 2016, signalling a lower fall in private sector activity.

"What started as a downturn driven by the 500 and 1,000 rupee note ban appears now to be losing strength. In fact, manufacturers already saw a turnaround, with production being raised in line with higher order books," De Lima said.