Hit hard by demonetisation, the services sector slipped into contraction in November - worst slump in nearly three years - as new orders dried up and customers cut spending due to cash shortages, putting pressure on RBI to keep rates low, a monthly survey showed on Monday. The Nikkei India Services Purchasing Managers’ Index (PMI), which tracks services sector companies on a monthly basis, stood at 46.7 in November, down from 54.5 in October.
The Index slipped into contraction territory for the first time since June 2015 and pointed to the sharpest reduction in output for almost three years. A reading above 50 means the sector is expanding, while a score below this mark signals contraction. Due to cash crunch in the economy post demonetisation, businesses declined in financial intermediation, hotels & restaurants and renting activities.
“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 in activity 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 the private sector activity, including the manufacturing sector.