India's services activity contracted for the first time in three months in November, on account of sluggish demand and lower customer turnout due to the implementation of Goods and Services Tax (GST), a business survey revealed.
Nikkei Services Purchasing Managers' Index (PMI) fell to 48.5 in November from 51.7 in October, lowest since August. A reading below 50 mark means contraction while, above that indicates expansion, reported Reuters.
"Panellists widely blamed the deterioration in business performance due to the goods and service tax (GST), which led to a fall in the new orders index," according to the Nikkei PMI press release.
A composite PMI, which takes into account both manufacturing and services activity, fell to 50.3 from last month's 51.3. However, factory activity expanded in November at the fastest pace post demonetisation, the news agency stated.
"We are surprised with the sudden dip in services activity in November, especially given that manufacturing firms, which face similar issues, reported higher activity. It is possible that a predominance of the unorganised sector in services, where business models have been shaken by the implementation of the GST, is facing greater challenges," Japanese brokerage house Nomura said in its note.
The PMI figures are little surprising as data released last week, by the Central Statistics Office showed that India grew at 6.3 percent for the quarter ended September, from its three-year low of 5.7 percent in last quarter, as businesses adjusted to the new GST tax regime.
However, former Prime Minister Manmohan Singh said it was "too early to conclude" that the economic slowdown is over and the economy has been revived.
"It is too early to conclude that this represents a reversal of the declining trend observed in the previous five quarters. Some economists believe that the CSO which released the figures has not adequately captured the impact of demonetisation and GST on the informal sector that accounts for about 30 percent of the economy," Singh said
"Hopes of a sustained recovery in November waned as marked growth in the manufacturing sector was broadly offset by a downturn in the service sector. Business underperformance emanated from July's Goods and Services Tax which contributed to sluggish demand and lower customer turnout," Reuters quoted Aashna Dodhia, an economist at IHS Markit.