The activity in the services sector witnessed a decline for the first time in three months with the Nikkei India Services Business Activity Index for May dropping to 49.6 as against 51.4 in the month of April. The reading below 50 indicates contraction while the reading above 50 mark is reflective of expansion.
Stagnancy in new business orders is the primary reason for such a slowdown in services activity. Meanwhile, growth in employment also slowed down to its weakest since the month of December.
While there was a rise in the input cost, weak demand limited companies in the services sector to pass on the cost to end consumers.
Nonetheless, due to the modest growth registered in the manufacturing sector despite the inflationary pressure which outweighs the slump in activity in the services sector, the Nikkei India Composite PMI Output Index came in above the 50 mark at 50.4 in the month of May as against 51.9 in April.
The statement by the IHS Markit highlighted the fact that cost for the dominant services sector has been on the higher side for the 32nd straight month and this is crucial given the fact that services activity contributes a huge 60% to India's economy.