Survey showed Deccline in Services Sector and Employment Levels

Survey released on 5 October 2011 showed that activity in the services sector shrank  and overall economic activity was found to be stagnating. Employment levels fell for the second successive month in September 2011.

HSBC Purchasing Managers Index, which is based on a survey of 350 private sector executives showed that the seasonally adjusted Service Sector Business Activity Index fell to 49.8 from 53.8 in August2011. Any reading of less than 50 indicates contraction, while economic activity is seen to be growing if the index is over 50. This is the first time since April 2009 that the services sector, that accounts for more than half the Indian economy slipped into negative terrain.

The decline in services sector activity was attributed to lower demand for offshoring and IT and IT-enabled services from the US and Europe, where several economies are grappling with debt problems. The decline in this sectorimpacted financial services as banking activity slowed down on account of higher interest rates and investors are wary of parking their funds in stock markets.

Due to the sharper-than-expected global slowdown and the impact of high interest rates on the domestic economy, the overall growth was observed to be slowing down at a faster clip than anticipated earlier.
The overall trend is in line with expectations that the Indian economy will grow at less than 8% during 2011-12. The economy expanded 8.5% in 2010 prompting the government to predict 9% growth in 2011. However, as the global economic situation deteriorated and higher interest rates slowed down the growth momentum the government lowered its forecasts.

The survey also showed that employment fell as awell increasing worries for policymakers, who want rapid economic growth to take care of the growing population that is joining the workforce.