NEW DELHI: The services sector, the largest contributor to GDP, has plunged to the lowest level in four years ostensibly owing to the introduction of the goods and services tax, according to the widely tracked Nikkei India Services Purchasing Managers’ Index.
PMI, which tracks services output on a monthly basis, plunged to 45.9 in July, the lowest since September 2013, from June’s eight-month high of 53.1.
Notably, the July services PMI also signalled the first downturn in output since the start of this year.
This shows a reversal in fortunes across India, with the economy going into the reverse mode after seeing a pick-up in growth momentum during June, said Pollyanna De Lima, principal economist at IHS Markit, which compiles the data.
GST rollout was cited by the services firms as having caused contraction in new work orders, leading to lower activity, the report noted.
The downturn in services follows a similar weakness in the manufacturing sector, which also contracted in July following the GST launch as new orders and output dropped significantly.
Accordingly, the seasonally adjusted Nikkei India Composite PMI Output Index -- which maps both manufacturing and services -- fell sharply to 46.0 in July, from 52.7 in June.
“Private-sector activity dipped for the first time since the demonetisation shock and to the greatest extent since early 2009, mirroring the sales trend,” said the principal economist.
However, she added that Indian service providers are optimistic that the prospects will brighten as the new tax regime becomes clearer.