Services sector contracts, putting pressure on govt

Services sector contracts, putting pressure on govt

A private survey showed that India’s dominant services sector contracted for the first time in three months, adding pressure on Prime Minister Narendra Modi to undertake reforms to boost growth amid a hawkish turn from the Reserve Bank of India (RBI).The Nikkei India Services Purchasing Managers’ Index slid to 47.8 in February from 51.7 in January, as business conditions deteriorated due to poor demand. A number below 50 indicates a contraction.

A dip in the services sector, which contributes about 60% to the Indian economy, could hurt an economy that’s forecast to grow at its slowest pace in four years. Sluggish growth, coupled with a lack of adequate job creation, is building pressure on Modi to jumpstart economic activity before seeking re-election in 2019.

RBI, which will review interest rates on 5 April, has flagged risks to inflation from higher crude oil prices and the budget, which widened fiscal deficit goals to boost spending.Businesses, grappling with slowing demand, are also bracing for rising input costs.“RBI is focused on inflation. They have a target and as long as inflation is in higher trajectory, there’s no case for RBI to lower rates,” Madan Sabnavis, chief economist at Care Ratings, said.Inflation accelerated from a low 1.46% in June to 5.07% in January.

The Economic Times, New Delhi, 06th March 2018

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