Mumbai - The Indian service sector's output declined last month to its lowest level since September 2013, a key macro-economic data showed on August 3.
According to the seasonally adjusted Nikkei India Services PMI Business Activity Index, the imposition of the Goods and Services Tax (GST) along with weak demand led to the deterioration in business sentiment.
The seasonally adjusted index registered a lower rate of expansion at 45.9 in July, down from June's 53.1. An index reading of above 50 indicates an overall increase in economic activity and below 50 an overall decrease.
The lower Services PMI coupled with a subdued Nikkei India Manufacturing PMI led to an overall decline in India's private sector's output.
Consequently, the seasonally adjusted Nikkei India Composite PMI Output Index fell sharply from 52.7 in June to 46 in July.
"PMI data for July highlight a reversal in fortunes across India, with the economy going into reverse mode after seeing a pick-up in growth momentum during June," said Pollyanna De Lima, economist at IHS Markit and the author of the report.
"The downturn in services follows similar weakness in manufacturing, to make a double-whammy of disappointing news at the start of the second quarter of the 2017-2018 financial year."
De Lima pointed out that private sector activity dipped for the first time since the demonetisation shock and to the greatest extent since early 2009, mirroring the sales trend.
"Most of the contraction was attributed to the implementation of the GST and the confusion it caused. Whereas many will question how deep an impact the GST will have on the economy in the near-and long-term, firms seem convinced that prospects will brighten as the new tax regime becomes clearer," De Lima said.
"As such, confidence regarding the year-ahead outlook for business activity climbed to an 11-month high."