Wednesday, 13 July 2016

Faltering services activity in India clouds growth outlook

Indian economy seems to have succumbed a little to the global slowdown as services activity in the country remained soft in June, raising fears over a sluggish recovery in Asia’s third biggest economy, strengthening the case for the Reserve Bank of India (RBI) to deliver another interest rate cut in the upcoming monetary policy review in August.

Signaling fresh signs of slowdown, a gauge of growth in India’s services sector cooled in June as new business failed to pick up amid tepid increase in fresh orders, indicating weak underlying demand in the Indian economy.

According to Markit Economics report, the Nikkei India Services Business Activity Index eased for a third straight month, coming in at 50.3 in June compared to 51 in May, with a reading above 50 indicating expansion in services activity over the previous month.

The softness in the services activity was primarily on the back of fragile global economic conditions and subdued pace of domestic activity. New work at services providers grew at the slowest pace in 11 months as competitive pressure limited greater gains.

However, its’ not all bad. The recent anemic growth was counterbalanced by manufacturing production, which surged to a three-month high in June, pushing the composite PMI that combines services and manufacturing from 50.9 in May to 51.1 last month.
Indian firms increased prices at a weaker pace last month, indicating that retail inflation could remain low in the coming months. Consumer inflation, at 5.76 per cent in May, is somewhat above the RBI's near-term target of five per cent, on higher food costs. According to analysts, country’s consumer inflation may have eased slightly to 5.6 per cent in June 2016 from 5.76 per cent surge in May, leaving a bit more scope for the RBI to cut interest rates, going forward.

The RBI has kept its benchmark interest rate unchanged at a five-year low of 6.50 per cent since April and is expected to cut rates one more time before Governor Raghuram Rajan's term ends in September, given that the inflationary pressures in the broader economy remain moderate.

Latin Manharlal

No comments:

Post a Comment