Services slowdown a cause of concern: FIEO

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SME Times News Bureau | 07 Nov, 2013
The decline in services PMI for the 4th consecutive month in September is a cause of concern and both industry and services have continued to slow down, said Federation of Indian Export Organisations (FIEO) President M Rafeeque Ahmed.

Commenting on the decline in services PMI, close to a decline in manufacturing PMI announced Tuesday, Ahmed stated that services are linked to and reflective of the real economy and indicates that the slowdown in economic growth is impacting this sector also.

The HSBC Services Purchasing Managers' Index (PMI), compiled by Markit, slipped from 47.6 in August to 44.6 in September, its weakest since April 2009.

Looking at it from the demand side, consumption demand is hurting because of inflation and high interest rates. At the same time, investment demand is hurting because of general sentiment, the policy framework and the relatively high interest rates, he added.

"Although there have been some positive developments such as Cabinet Committee on Infrastructure (CCI) clearing stalled projects, the issue is, that once these projects are cleared, when do they get off the ground and give the spin-off ancillary benefits which would have a multiplier effect," he said.

The total credit to the infrastructure sector witnessed a growth of 21% during 2012-13; while bank credit grew by 19%, IFCs showed a higher growth at 24%.

"With the current environment in infrastructure sector remaining marked by weaker investor sentiment, besides a reduction in lenders' risk appetite, the growth in 2012-13 was largely led by disbursements to earlier sanctioned under-implementation projects as well as transitional loans given by the Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) while fresh investment in infrastructure sector remained subdued," Ahmed said.

The FIEO chief reiterated the need to kick-start investments so as to bring economy to high growth track of early-2000s driven by investment demand which we need to resume.

For the export sector, priority lending window, subsidizing interest rates further given the possibility of further interest hikes, subsidies for warehousing/distribution outlets in markets of potential could be considered, Ahmed said.