The HSBC Services Purchasing Managers’ Index (PMI), compiled by Markit, rose to 48.8 in February from 48.3 but was still caught below the 50 mark that separates growth from contraction for the eighth month. (Agencies)
India's services sector accounts for about 60 percent of Gross Domestic Product (GDP). The weak PMI follows lower than expected GDP growth of 4.7 percent at the end of 2013, suggesting there may be worse to come for the economy as India heads into a multi-phase election.
"The PMI reading remains below the water line and points to weak growth conditions," said Leif Eskesen, chief economist for India and ASEAN at survey sponsor HSBC.
Indeed, hiring remained muted and all 22 economists polled last week said they don't expect any substantial improvement in investment before the general elections.
As new business orders shriveled for an eighth month, the firms focused on completing the existing work and barely increased the headcount, resulting in employment sub-index slipping to 50.1 from 50.9.
But firms did pass on higher costs to clients, suggesting that the consumer price inflation, which was at 8.79 percent in January, could rise further.
The Reserve Bank of India (RBI) has unofficially started targeting consumer prices to frame its policy and signs of faster rises will pressure the central bank to hike rates again.
However, at its January policy meeting, the RBI said if inflation eases as projected, it does not expect further tightening of policy in the near-term.
But HSBC's Eskesen said the risks to inflation remain.
"Despite the weak growth backdrop, the RBI will have to keep its inflation guards up to address lingering inflation pressures,” he said.
The HSBC Services Purchasing Managers’ Index (PMI), compiled by Markit, rose to 48.8 in February from 48.3 but was still caught below the 50 mark that separates growth from contraction for the eighth month.