India services activity contracts again in August on weak demand

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Activity in India’s dominant services sector contracted for a second straight month in August as disruptions caused by a new tax policy hurt new orders, a private survey showed on Tuesday.

August’s Nikkei/IHS Markit Services Purchasing Managers’ Index rose to 47.5, up from July’s 45.9 but still below the 50 mark that separates expansion from contraction.

The last time services activity shrunk for two or more consecutive months was after Prime Minister Narendra Modi banned high-value currency notes in November last year, which sapped consumer demand in the largely cash-reliant economy.

India’s economic growth rate unexpectedly cooled to a three-year low in the three months to end-June, so the latest PMI will no doubt add to the gloom for policymakers.

A composite PMI, which takes into account both manufacturing and services activity, was up from July’s 46.0 but remained in contraction territory at 49.0 despite a surprise rebound in manufacturing activity last month.

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