Service sector slowdown to hit India. But no respite in inflation

Business

oi-Shoaib MD

By Shoaib Md

Published: Monday, September 5, 2011, 15:43 [IST]

The pace of growth for the service industry in India slowed. It was slowest in the last two years in August. Many experts are being quoted by the media that this slowdown is because of high-interest rates as the central bank has hiked the same on 11 occasions to restrain demand. Also the weak global demand is also an additional reason for restrained consumer demand.

The Purchasing Managers" Index (PMI) fell to 53.8 for the month of August (2011) from 58.2 in July (2011), the PMI is issued by the HSBC Holdings and Markit Economics. According to the statement issued by Market Economics,'growth of Indian private sector output slows to 27-month low'. A reading above 50 indicates an expansion.

The Asian Central banks are facing dilemma as growth has slowed due to lack of recovery in US and Europe"s ballooning debt crisis has hit the export economies of the region, meanwhile, inflation has remained too high for too long.

Manufacturing in the country, India, has slowed; but inflation is still high maintaining above 9% for eight consecutive months despite RBI increasing interest rates on 11 occasions.

With the jobless data in US indicating that the economy is losing its steam, there is worry that the world might slip into recession again.

D Subbarao, Governor Reserve Bank of India, has raised interest rates to 8% by July 26. He has been articulate that the central banks primary concern is inflation, even though there is a threat to growth from global financial risks.

Commercial loans provided by private banks have increased by approximately 20.22% according to a news report by Bloomberg from a year earlier as of Aug 12. This exceeds the central bank"s projection of 18%.

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