Services sector contracts on cash shortage; worst in 3yrs: PMI

December 05, 2016 11:37

Hit hard by cash shortage, services sector contracted in November -- that too at sharpest rate in three years -- as new orders fell for the first time since June 2015 though subdued inflationary pressure opened up room for RBI to lower rates, a monthly survey showed today.

The Nikkei India Services Purchasing Managers' Index, which tracks services sector companies on a monthly basis, stood at 46.7 in November, down from 54.5 in October. A reading above 50 means the sector is expanding while a score below this mark signals contraction.

The index has registered a contraction for the first time since June 2015 and marked the sharpest reduction in output in almost three years.

"The latest set of gloomy PMI figures for the Indian service sector shows that companies were heavily impacted by the ban on Rs 500 and 1,000 notes. The cash shortage resulted in fewer new business intakes, which in turn caused a fall inactivity and ended a 16-month sequence of expansion," said Pollyanna De Lima, IHS Markit economist and author of the report.

The Nikkei India Composite PMI Output Index also dropped to 49.1 in November from October's 45-month high of 55.4, pointing to a contraction in entire private sector activity, including the manufacturing sector.

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