Ser­vices PMI Plunges to 4-yr Low in July on GST Wor­ries

Fol­lows dip in man­u­fac­tur­ing PMI for the same month; but sec­tor con­fi­dence at 11-month high

The Economic Times - - Front Page - Our Bu­reau

New Delhi: In­dia’s ser­vices ac­tiv­ity plunged to a four-year low in July be­cause of the dis­rup­tion caused by the goods and ser­vices tax (GST), a pri­vate sur­vey showed, but in­dus­try is con­fi­dent of a quick re­bound as the new tax regime set­tles into place. This fol­lows a man­u­fac­tur­ing in­di­ca­tor plum­met­ing to an eight-year low last month be­cause of the same rea­son — GST, which was rolled out on July 1. The Nikkei In­dia Ser­vices PMI Busi­ness Ac­tiv­ity In­dex plunged from June’s eight-month high of 53.1 to 45.9 in July, its low­est level since Septem­ber 2013, but con­fi­dence about the fu­ture tellingly touched an 11-month high.

A read­ing above 50 on the in­dex denotes ex­pan­sion while a num­ber less than the half­way mark is

an in­di­ca­tor of con­trac­tion.

“PMI data for July high­light a re­ver­sal in for­tunes across In­dia, with the econ­omy go­ing into re­verse mode af­ter see­ing a pickup in growth mo­men­tum dur­ing June,” said Pollyanna De Lima, eco-

nomist at IHS Markit and author of the re­port. The Re­serve Bank an­nounced a 25 ba­sis point cut in the key in­ter­est rate on Wed­nes­day to boost growth amid slug­gish in­dus­trial ac­tiv­ity and low in­fla­tion. The cen­tral bank sounded a cau­tion­ary note on growth on ac­count of slug­gish pri­vate in­vest­ment and other factors, while re­tain­ing its fore­cast on eco­nomic ex­pan­sion.

“The 78th round of the Re­serve Bank’s in­dus­trial out­look sur­vey (IOS) re­vealed a wan­ing of op­ti­mism in Q2 about de­mand con­di­tions across pa­ram­e­ters, and es­pe­cially on ca­pac­ity util­i­sa­tion, profit mar­gins and em­ploy­ment,” the cen­tral bank said in its pol­icy an­nounce­ment. “In its as­sess­ment of real ac­tiv­ity, the MPC (mon­e­tary pol­icy com­mit­tee) noted that while the out­look for agri­cul­ture ap­pears ro­bust, un­der­ly­ing growth im­pulses in in­dus­try and ser­vices are weak­en­ing, given cor­po­rate delever­ag­ing and the re­trench­ment of in­vest­ment de­mand.”

Data re­leased ear­lier in the week showed a steeper fall in man­u­fac­tur­ing PMI to an eight-year low in July due to GST-re­lated ad­just­ments in man­u­fac­tur­ing. The Nikkei/IHS Markit com­pos­ite Pur­chas­ing Man­agers’ In­dex, which mea­sures both man­u­fac­tur­ing and ser­vices ac­tiv­ity, sank to 46 — its low­est read­ing since March 2009 — from June’s eight-month high of 52.7.

Re­cent of­fi­cial data has also not been too pos­i­tive with core sec­tor growth slow­ing to a 19-month low of 0.4% in June.

Ex­cept­ing fi­nance and in­surance, the other four sec­tors — con­sumer ser­vices, trans­port and stor­age, in­for­ma­tion and com­mu­ni­ca­tion, and real es­tate and busi­ness ser­vices — re­ported a con­trac­tion in new busi­ness.

Though firms ex­pressed a lack of ad­e­quate knowl­edge re­gard­ing GST, they ex­pect more clar­ity in the near term to lead to ac­tiv­ity growth.


Around one in four ser­vice providers fore­see out­put growth in the year ahead, com­pared with only 1% of firms that fore­cast a re­duc­tion.

As per the monthly sur­vey, the over­all level of sen­ti­ment climbed to an 11-month high and prospects are an­tic­i­pated to im­prove amid hopes of more trans­parency re­gard­ing GST. There were also men­tions that mar­ket­ing cam­paigns will sup­port ac­tiv­ity growth. “Whereas many will ques­tion how deep an im­pact the GST will have on the econ­omy in the nearand long-term, firms seem con­vinced that prospects will brighten as the new tax regime be­comes clearer,” De Lima said.

Ser­vices charges rose at the sharpest rate in al­most four-and-a-half years in July in con­trast with man­u­fac­tur­ers, which of­fered dis­counts amid ef­forts to stim­u­late de­mand.

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