The HSBC India Composite Output Index, which maps both services and manufacturing, stood at 49.6 in January, below the crucial 50 mark, for the seventh consecutive month. (Agencies)
The fall in the composite index was largely on account of drop in services sector output unlike the manufacturing sector which had seen acceleration in production growth in January.
The headline HSBC Services Business Activity Index, though improved from December's 46.7 to 48.3 in January, it was still below the crucial 50 mark which separates growth from contraction.
According to HSBC, tough economic conditions, political issues and lower new order levels are the main reasons behind the fall in services sector output.
"Service sector activity remains weak and broad based," HSBC Chief Economist for India and ASEAN Leif Eskesen said.
Service providers in the country reported falling new business orders for the seventh month running in January, amid increased competition for new work, deteriorating confidence among clients and weaker underlying demand, HSBC said.
Service providers were however optimistic that business activity would expand over the next year largely supported by planned increases in marketing activities, forecasts of an overall improvement in the Indian economy and stronger demand.
Meanwhile, staffing levels across the private sector rose for the second successive month as both service providers and manufacturing companies hired additional workers.
On price-rise, HSBC said input cost inflation in the Indian private sector hit a three-month high.
"Despite the weak growth backdrop, the RBI has to stick to its hawkish bias to get inflation under control and through this eventually pave the way for a recovery in economic activity," Eskesen said.
Reserve Bank Governor Raghuram Rajan raised the key policy rate by 0.25 percent to 8 percent in the third quarter review of monetary policy, in a bid to curb inflation.
The central bank lowered its growth forecast for the current financial year to less than 5 percent from its earlier forecast of 5 percent and said inflation will continue to hover around 8 per cent by March-end.
Retail or CPI inflation in December moderated to a three-month low of 9.87 percent, while the wholesale or WPI was at 5-month low of 6.16 percent during the month.
The HSBC India Composite Output Index, which maps both services and manufacturing, stood at 49.6 in January, below the crucial 50 mark, for the seventh consecutive month.