Scarcely did we rejoice about GDP growth picking up in the December quarter than the Purchasing Managers’ Indices (PMI) delivered bad news. The Nikkei India Composite PMI Output Index, a gauge of conditions in both the manufacturing and services sectors, showed that private sector activity contracted in February 2018. The composite index fell from 52.5 in January to 49.7 in February. A reading below 50 indicates contraction from the previous month.

The composite index was dragged lower by the services PMI, which fell from 51.7 in January to 47.8 in February. Manufacturing, too, lost momentum during the month, falling from January’s 52.4 to 52.1, although it continued to expand.

Which sectors dragged down the services index? The PMI survey says, “Downturns in consumer services, finance & insurance, real estate & business services outweighed the upturns in information & communication and transport & storage." What’s more, consumer services and real estate & business services reported declines in new business.

The PMI numbers for February indicate a loss of momentum in the economy. Although it’s still not reason for alarm, perhaps what it shows is that the recovery is going to be slow. There are, after all, headwinds emanating from higher interest rates, higher inflation, the parlous state of the banking sector and from the external sector.

Within the services sector PMI, the input price and prices charged indices moved up. Taken together with the rise in output prices in the manufacturing PMI, it shows the return of inflationary pressures.

It is also unfortunate that the “future output" sub-index in the manufacturing PMI and the “business expectations" sub-index in the services PMI have moved down in recent months, indicating that animal spirits among entrepreneurs are drooping.

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