The Indian services sector suffered twice in succession as business activity contracted and new orders were affected post the Goods and Services Tax (GST) on July 1, a monthly survey revealed.
"Services acted as a drag on the private sector economy in August, with the reduction in business activity offsetting growth of manufacturing production," PTI quoted Pollyanna De Lima, Principal Economist at IHS Markit, as saying.
The survey report showed that the downturn in August was less severe than in July, when services sector contracted the most thanks to confusion caused by the GST rollout, which triggered a dip in new business orders. But the report revealed that jobs were shed in August too, primarily due to fewer workloads and accumulation of backlogs.
The Nikkei India Services Purchasing Managers' Index (PMI) Business Activity Index improved slightly to 47.5 in August from 45.9 in July, indicating second successive decline in output, PTI reported. A reading below 50 mark means contraction while, above that indicates expansion.
"The underlying trend for services is one of uncertainty. Businesses are holding back on investment, leading to falls in employment. At the same time, input costs are increasing and firms are unable to fully pass these on due to competitive pressures," Lima added.
Prime Minister Modi scrapping of high value currency notes last year in a bid to fight corruption and stamp black money, has slowed down India's business activity as they suffered from a severe cash crunch.
Earlier in last week, data released by Central Statistical Organisation (CSO) on revealed that GDP grew just 5.7 percent in the April-June quarter of the 2018 fiscal, lowest since the March quarter 2014.
The slowdown was led by the manufacturing sector, which expanded at 1.2 percent from a year earlier compared with a 10.7 percent growth last year.
But the country's manufacturing sector gathered steam in August and is turning around slowly with the new business orders started improving. But still the growth is insufficient to offset the contraction in services activity.
"It's not all doom and gloom as business activity, new business and employment showed much slower rates of reduction than those recorded in the July survey," Lima told the agency.
