India's services PMI contracts in Dec; business sentiment worst in 11-year history

Nikkei India Services Purchasing Managers' Index, or PMI, remained weak at 46.8 in the month of December. It was a marginal change from November's 46.7 after demonetisation hit services sector in the country.

Commenting on the Indian Services PMI survey data, Pollyanna De Lima, economist at IHS Markit, said, "The Indian service economy ended 2016 on a grim note, with the average PMI activity index reading for the Oct-Dec quarter the lowest since early-2014. Combined with the manufacturing PMI, data suggest that Indian GDP is set to grow in Q3 FY16/17, but a slowdown is likely." 

"Backlogs continued to rise, while employment decreased fractionally. Panel members widely blamed the deterioration in economic conditions on the rupee demonetisation, with concerns towards the speed of the recovery weighing heavily on sentiment. Meanwhile, input costs rose further, but efforts to boost demand led some firms to lower their charges," Nikkei, IHS Markit report said. 

As per the report, the business confidence dipped to the third-lowest in the survey history. Evidence highlighted expectations of a rebound in demand in the coming 12 months, but worries towards the speed of the recovery following the demonetisation hampered confidence.

"Of concern, business confidence among service providers plunged to one of the lowest in the series’ 11-year history, suggesting that an imminent rebound from the rupee-demonetisation downturn is unlikely."