| India's services sector expanded at its slowest pace in 20 months in May as soaring prices and interest rate hikes gnawed at new business growth and reduced the level of optimism, a survey showed on Friday. The seasonally adjusted HSBC Markit Business Activity Index, based on a survey of over 400 firms, slipped to 55.0 in May from 59.2 in April, marking its twenty-fifth successive month above the 50 level that divides growth from contraction. While the latest reading underlines a reasonably solid pace of growth in the services sector, its decline is an indication that continuous rate rises aimed at containing inflation are putting the brakes on India's rapid expansion. All sub-indexes saw a fall when compared to April, with the exception of input costs and employment. New business received by service companies remained strong but the pace of expansion slowed with the sub-index falling to its lowest level since October last year. Among the sub-indexes, business expectations saw the steepest fall to 67.8 in May from 72.8 in April, as respondents, though confident of the sector's performance over the next 12 months, slightly tempered expectations as economic uncertainty loomed. Data released earlier this week showed Asia's third-largest economy grew at its slowest annual pace in five quarters in January to March as consecutive interest rate hikes, aimed at reigning in soaring inflation, began to take effect. Gross domestic product rose 7.8 percent from a year earlier, lower than 8.3 percent in the previous quarter and below the median 8.2 percent forecast in a Reuters poll. While weaker-than-expected growth might cause the Reserve Bank of India (RBI) to raise rates in smaller increments, the survey showed price pressures will persist. Input costs increased markedly in May due to rising wage bills and raw material costs. Further inflation pressures are expected as the economy braces for an increase in government-controlled prices of diesel and cooking fuels. |
