The Indian service sector’s output continued to be weak in August, impacted by the implementation of the Goods and Services Tax (GST) from the previous month, a key macro-economic data showed on Tuesday.
According to the seasonally adjusted Nikkei India Services PMI Business Activity Index, the pace of downturn last month was less than the contraction in July when output had declined to its lowest level since September 2013.
The seasonally adjusted index rose to 47.5 in August from 45.9 in July. An index reading of above 50 indicates an overall increase in economic activity and below 50 an overall decrease.
“Services acted as a drag on the private sector economy in August, with the reduction in business activity offsetting growth of manufacturing production. While July’s downturn in the goods-producing industry proved to be a temporary blip, services remained trapped in contraction,” said Pollyanna De Lima, economist at IHS Markit and the author of the report.
“The downturn was often associated with the implementation of the GST, though there were also a mention of shortages of inputs,” Nikkei said in a release.
The Nikkei India Manufacturing PMI in India report last week showed output rebounding in August with new orders and output returning to growth territory after falling in July.
“Although manufacturing production rebounded from July’s downturn, growth was insufficient to offset the contraction in services activity. Private sector output subsequently declined again,” the release said.
Taking both indices together, the seasonally adjusted Nikkei India Composite PMI Output Index rose from July’s 100-month low of 46 to 49 in August.
Contractions were noted in each of the five services sub-sectors monitored by the survey.
“Where a reduction was noted, panellists commented on subdued demand, competitive pressures and the GST,” Nikkei said.
The survey also found that on the employment front, payroll numbers in the service sector declined in August amid evidence of the non-replacement of voluntary leavers. The decline in employment was the second in successive months.