India's services sector growth softens in April

New Delhi: Private sector activity in the country eased in April amid slower expansion in new business inflows in services sector while order books at manufacturers also broadly stagnated, adding to the clamour for further interest rate cuts by Reserve Bank.

The Nikkei India Composite PMI Output Index, which maps both manufacturing and services sectors, dropped from 54.3 in March (37-month high) to 52.8 in April, pointing to a softer expansion in private sector activity across the country.

"Having accelerated to the fastest in over three years during March, activity growth across India's private sector took a step back in April," said Pollyanna De Lima, economist at Markit, which compiles the survey.

Lima added that manufacturers appear to be still struggling to generate strong upward momentum in a subdued demand environment while solid increase in activity and new work were sustained among service providers.

Meanwhile, the Nikkei Services Business Activity index was down from 54.3 in March to 53.7 in April.

The survey noted that April data highlighted a general lack of pressure on the capacity of Indian service providers as unfinished business declined.

On the employment front, services employment was unchanged in April. Broadly stagnant employment trends have now been registered through the past nine months. Meanwhile, manufacturing payroll numbers were also unchanged.

The higher prices paid for fuel, average input costs faced by Indian services companies increased in April and the rate of cost inflation reached a 13-month high.

Part of additional cost burdens was passed on to clients, as both manufacturers and service providers raised their selling prices again in April, Nikkei said.

Meanwhile, services firms' sentiment weakened slightly in April, with the degree of optimism being modest by historical standards.

"Nevertheless, a softer expansion in activity, combined with unchanged employment and a dip in business expectations among the latter suggest that companies are not fully convinced about the recovery and that March's stronger numbers might have been a one-off," Lima added.

In the first bi-monthly monetary policy review for 2016-17 announced on April 5, RBI governor Raghuram Rajan reduced the key interest rate by 0.25 percent and introduced a host of measures to smoothen liquidity supply.

While this was the first rate cut after a gap of six months, RBI has lowered its rate by 1.5 percent cumulatively since January last year. However, the industry still wants further rate cuts from the central bank.