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Rupee ban leads to sharp fall in services in India

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Staff Writer | January 5, 2017
Business activity in the Indian service sector fell for the second consecutive month in December, reflecting a steeper reduction in incoming new work.
India factory workers
Economy in India   Nikkei India Services PMI
Backlogs continued to rise, while employment decreased fractionally. Panel members widely blamed the deterioration in economic conditions on the rupee demonetisation, with concerns towards the speed of the recovery weighing heavily on sentiment.

Meanwhile, input costs rose further, but efforts to boost demand led some firms to lower their charges. The seasonally adjusted headline Nikkei India Services Business Activity Index registered 46.8 in December, little-changed from November’s reading of 46.7 and indicating a further solid contraction in output.

Moreover, the downturn was broad-based by sub-sector, with Hotels & Restaurants firms the worst performers. With factory production also falling, activity across the private sector economy as a whole dipped to the greatest extent in over three years.

This was highlighted by the seasonally adjusted Nikkei India Composite PMI Output Index recording 47.6 in December, from 49.1 in November. Data implied that services activity fell in response to a solid and accelerated drop in new business during December.

The rate of contraction in new work quickened to the fastest since September 2013, with anecdotal evidence suggesting that the decline reflected shortages of money in the country.

Meanwhile, order books at manufacturers decreased for the first time in 2016, albeit marginally.

Cash flow issues reportedly caused another increase in outstanding business among private sector firms, with backlogs rising for the seventh straight month (although only moderately).