India's service sector growth slumps to 17-month low
New Delhi: The country's private sector output for the month of March witnessed the slowest rate of expansion in 17 months owing to a significant decline in new business orders, an HSBC survey said on Wednesday.
The HSBC India Composite Output Index -- which maps both the manufacturing and services index -- fell to 51.4 in March from 54.8 in February indicating business activity increased only slightly, and at the slowest pace since October 2011.
Output growth eased across both the manufacturing and service sectors but index remained above the 50 mark below which it indicates contraction.
Meanwhile, the headline HSBC Services Business Activity Index registered 51.4 in March, down from 54.2 in February.
"Growth in service sector activity slowed notably due to a deceleration in new business flows," HSBC Chief Economist for India & ASEAN Leif Eskesen said adding that the backlogs of work and hiring rose at a slower pace.
Earlier data showed that India's manufacturing sector also witnessed the slowest rate of expansion in 16 months in March as power outages hampered production activity along with decline in new business orders.
Service sector firms as well as manufacturers added to their staff numbers during March, but the rate of job creation was "moderate".
After registering a 12 month high in January, the country's services sector has reported weak output for the last two months. However service providers remain optimistic about the future.
The degree of confidence among service providers was the strongest registered since December 2012 and service sector firms linked positive sentiment to expectations of stronger demand and planned investment in marketing, HSBC said.
On inflation, the report said input prices in the Indian service sector rose but moderately during March and subsequently, services companies increased their selling prices.
"Encouragingly, input prices and prices charged inflated less fast. Despite this the scope for further rate cuts is limited, and the next cut may well be the last," Eskesen said.
The Reserve Bank in its mid-quarter monetary policy review on March 18 reduced the indicative policy rate (repo rate) by 25 basis points from 7.75 to 7.50 percent. Repo rate is the rate at which banks borrow short-term funds from the central bank.
India's GDP growth in the third quarter of 2012-13 stood at 4.5 percent, the weakest in the last 15 quarters.