By Dow Jones Business News, October 04, 2013, 02:15:00 AM EDT
By Anant Vijay Kala
NEW DELHI--India's contraction in services-sector activity worsened in September as new orders fell for the third-
straight month, heightening worries in an economy struggling to emerge from a prolonged slowdown.
The seasonally adjusted HSBC Service Sector Business Activity Index, prepared by Markit, fell to 44.6 in September
from 47.6 in August, it showed on Friday. A figure above 50 indicates expansion and one below 50 indicates contraction.
September's contraction was the fastest since March 2009.
Services contribute about 60% to India's gross domestic product. The sector had been relatively more resilient to the
economic slowdown than manufacturing. But with recent data pointing to a steady decline in its health, prospects of a
wider economic recovery could get bleaker.
Indian stocks that were moving higher in early trade fell soon after the findings were announced.
At 0513 GMT, the Bombay Stock Exchange's S&P BSE Sensex was down 0.1% to 19,889.72 points, while the National Stock
Exchange's Nifty traded down 0.2% to 5900.05 points. The Sensex and Nifty were trading about 0.7% higher before the
release of the survey.
Leif Eskesen, HSBC's chief economist for India, said tighter financial conditions and heightened macroeconomic
uncertainty are weighing on growth.
New business received contracted at the sharpest pace since February 2009 due to weaker order flows from renting and
business activities, hotels and restaurants and financial intermediation, he added.
Findings of a similar survey by HSBC and Markit released Tuesday showed manufacturing activity in India shrank for the
second month in September due to weakening exports.
HSBC said both manufacturers and service providers reported cut in jobs due to the fall in new orders.
Even as activity shrank, worries over inflation persisted. HSBC said prices paid by private-sector companies rose at
the strongest rate in seven months. While manufacturers were hurt by a weak rupee, services firms cited increased fuel,
food and transport costs for the elevated inflationary pressures.
"Despite the weak growth backdrop, inflation readings held broadly steady. This, in turn, supports RBI's (Reserve Bank
of India's) stepped up efforts to better anchor inflation expectations," Mr. Eskesen said.
At its most-recent monetary-policy review on Sept. 20, the RBI surprised markets by raising its main lending rate by a
quarter percentage point to guard against high inflation. Economists worry the rate increase could squeeze credit demand
and damp prospects of an economic recovery.
India's economy grew at a decade-low rate of 5.0% in the year ended in March because of high borrowing costs,
crumbling infrastructure and a slow pace of change in economic policies needed to revive investments. Government data
issued late August showed that pace slowed further to 4.4% in the three months to June.
Write to Anant Vijay Kala at email@example.com
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