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Services activity in India declines as cash shortages hit

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Staff Writer | December 7, 2016
The performance of India’s service sector weakened in November as a result of cash shortages.
India’s service sector
Asia   Nikkei India Services PMI
New business declined for the first time since June 2015, leading to a solid reduction in activity. Correspondingly, backlogs of work rose, while employment increased only marginally.

In spite of the falls in output and new orders, optimism regarding future activity improved. Input costs were broadly unchanged, whereas prices charged decreased slightly.

Dropping from 54.5 to 46.7 in November, the seasonally adjusted headline Nikkei India Services Business Activity Index registered in contraction territory for the first time since June 2015 and pointed to the sharpest reduction in output for almost three years.

Anecdotal evidence highlighted a lack of cash in the economy. Activity decreased in three of the six monitored sub-sectors, namely Financial Intermediation, Hotels & Restaurants and Renting & Business Activities.

Factory production rose further during the month, but the rate of growth eased. Concurrently, the seasonally adjusted Nikkei India Composite PMI Output Index dipped from October’s 45-month high of 55.4 to 49.1 in November, thereby pointing to a slight contraction in private sector activity overall.

As was the case for activity, new business inflows at services firms declined during November. The fall in new work was the first in 17 months and the steepest in over three years.

Panellists indicated that cash shortages restricted client bookings. Although the scarcity of rupee notes also weighed on manufacturing performance, new order growth was sustained.

The rise was, however, insufficient to offset the downturn in services and new business across the private sector as a whole decreased slightly.