After the rising price pressures caused a decrease in the new business orders, the activity in the service industries of India contracted in February for the first time since November showed a private survey on Monday. After a ban was issued on the high-value currency notes in November 2016, the services activity suffered for mostly the entire year. The implementation of the national sales tax 1 on 1st July was another setback which further weakened the demand. The index of the Nikkei/HIS Markit Services Purchasing Manager fell to the lowest in six months of 47.8 in February as compared to 51.7 in January.
Growth usually separates from contraction using the 50-mark. Since November, both activities, as well as new work, has declined with the rates of contraction being the strongest since August ending the recent recovery which was experienced by the service sector of India. A sub-index tracking new business fell down to a six-month low of 48 last month right from 51.7 in January as demand was being affected by high prices. According to the survey, the prices rose at their fastest speed in seven months after there was a hike in the input costs forced services firms in order to transfer some of the pressure of inflation to the customers.
The fuel prices elevated even after declining a bit in January. In addition to this, the expectations of the huge government spending in the coming year will also keep the inflation rate above the medium-term target of Reserve Bank of India of 4 percent in the near future thereby increasing the chances of a hike in the benchmark rate of the central bank. The third-largest economy of Asia grew at the sharpest annual rate till date in more than a year during the quarter to end-December of 7.2 percent thereby taking back its title of the fastest growing major economy in the world.