India's service sector growth slows in January as new business slips to four-month low

Growth in India`s dominant services sector weakened for a second month in January but firms accelerated hiring despite waning demand, a private survey showed on Tuesday.

The Nikkei/IHS Markit Services Purchasing Managers` Index declined to a three-month low of 52.2 in January from 53.2 in December, but remained above the 50 mark separating growth from contraction for an eighth month.

"There is some sign that growth may run out of steam, in the short-term at least, as seen by the weakest improvement in demand for four months and relatively subdued optimism," said Pollyanna De Lima, principal economist at IHS Markit.

"Should data for services carry on a downward path, we could see a slowdown in GDP expansion in the final quarter of fiscal year 2018."

Weaker growth in domestic demand, dampened by sharper price rises, offset a rebound in foreign sales and dragged a sub-index tracking new business orders to its lowest since September.

That, alongside uncertainty over the outcome of a national election due in May, pulled down optimism about future activity to a three-month low.

Yet firms increased staff levels at the fastest rate in three months, partly on expectations of increased business after the elections and possibly reflecting resilience in manufacturing activity.

"The good news came from the Indian labour market. Job creation at service providers was among the strongest seen for the past seven-and-a-half years at the start of 2019," added De Lima.

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"The increasing willingness of companies to hire workers should help reduce still high levels of unemployment in the country."

A composite index, taking into account both manufacturing and services activity, remained unchanged at December`s 53.6, helped by an unexpected acceleration in factory activity.