SER­VICES SEC­TOR CON­TRACTS FOR SEC­OND MONTH IN A ROW

Au­gust PMI falls to 47.5 from 45.9 in July

Business Standard - - FRONT PAGE - SUBHAYAN CHAKRABORT­Y

The in­tro­duc­tion of the na­tion­wide goods and ser­vices tax con­tin­ued to be a drag on ac­tiv­ity in the ser­vices sec­tor in Au­gust, for a sec­ond month, with com­pa­nies hav­ing to han­dle higher in­put prices and slow de­mand.The widely-tracked Nikkei Pur­chas­ing Man­agers’ Index showed a read­ing for the ser­vices sec­tor of 47.5 in Au­gust.

In­tro­duc­tion of the na­tion­wide goods and ser­vices tax (GST) con­tin­ued to be a drag on ac­tiv­ity in the ser­vices sec­tor in Au­gust, for a sec­ond month, with com­pa­nies hav­ing to han­dle higher in­put prices and slow de­mand.

The widely-tracked Nikkei Pur­chas­ing Man­agers’ Index (PMI) showed a read­ing for the ser­vices sec­tor of 47.5 in Au­gust. The 50-point mark sep­a­rates ex­pan­sion from con­trac­tion. How­ever, the de­cline was softer than in the pre­vi­ous month of July, when the PMI had plunged to a nearly four-year low of 45.9.

Last week, the lat­est gross do­mes­tic prod­uct (GDP) data showed a three-year plunge in economic growth at 5.7 per cent in the first quar­ter of the cur­rent fi­nan­cial year.

While PMI data for man­u­fac­tur­ing re­bounded in Au­gust, ris­ing to 51.2 points from 47.9 in July, ser­vices' providers con­tin­ued to grap­ple with a slow­down in new busi­nesses. The en­ti­ties sur­veyed blame this on sub­dued de­mand and ris­ing com­pet­i­tive pres­sures em­a­nat­ing from GST.

“The tax rates un­der GST for a num­ber of ser­vices have in­creased. More com­pa­nies are af­fected by this, as com­pli­ance has also gone up,” said Aditi Na­yar, prin­ci­pal econ­o­mist at rat­ings agency ICRA.

The slow­ing in ser­vices could also be at­trib­uted to the fact that some of the ma­jor seg­ments within the sec­tor such as bank­ing, tele­com and in­for­ma­tion tech­nol­ogy are deal­ing with unique sets of is­sues, she added.

The PMI sur­vey for July showed out­put and new work had started de­clin­ing for the first time since Jan­uary. Like­wise, fac­tory or­ders had de­creased in July, at the quick­est pace since Fe­bru­ary 2009.

As a re­sult of th­ese trends, the labour mar­ket con­tin­ued to be ad­versely af­fected, with em­ploy­ment con­tin­u­ing to de­cline, al­beit marginally, for a sec­ond month. How­ever, job shed­ding is ex­pected to ease to a mar­ginal pace, as the vast ma­jor­ity of ser­vice providers have left head­counts un­changed.

“The un­der­ly­ing trend for ser­vices is of un­cer­tainty. Busi­nesses are hold­ing back on in­vest­ment, lead­ing to falls in em­ploy­ment,” said Pollyanna De Lima, prin­ci­pal econ­o­mist at IHS Markit, which com­piles the data, and author of the re­port.

In­ter­est­ingly, man­u­fac­tur­ers took on ex­tra staff at the quick­est rate in nearly four and a half years in Au­gust.

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