(Reuters) - Growth in India's dominant services industry slowed sharply in July, squeezed by high inflationary pressures and weaker demand, leading to a further fall in business expectations, a private survey showed.
The S&P Global India Services Purchasing Managers' Index sank to 55.5 in July from 59.2 in June, its lowest since March and below the Reuters poll expectation of 58.5.
But the index has been above the 50-mark that separates growth from contraction for a year and July's reading was higher than the long-term average.
Moreover, despite sliding from an over 11-year high set in June, the relatively strong reading was underpinned by firm domestic demand.
"There were many positives in the latest results. Business activity continued to rise strongly, with a similarly robust uplift in new business as the offering of new services and marketing efforts bore fruit," said Pollyanna De Lima, economics associate director at S&P Global Market Intelligence.
"There was, however, a noticeable loss of momentum for the Indian service economy as demand was somewhat curtailed by competitive pressures, elevated inflation and unfavourable weather."
Like many other countries, Asia's third largest economy has been grappling with soaring inflation - at a near-decade high - exacerbated by rising commodity prices. A weaker rupee has further bumped up imported inflation.
The Reserve Bank of India (RBI) embarked on its tightening cycle in May, later than most of its peers, but is expected to front-load subsequent hikes to combat inflation.
The new business sub-index was at a four-month low but faired well on historical standards as domestic demand remained firm. New export orders contracted for a 29th straight month, since the onset of the coronavirus pandemic.
Most firms had enough manpower to handle current requirements leading to subdued job creation last month, much the same as in June.
Input prices rose sharply and stayed above the long-run average, despite softening to the slowest pace since February. Food, fuel, inputs, labour, retail, tool and transportation costs were all up.
Firms chose to pass some of the additional costs to customers and although that pace eased from an almost five-year high set in June it was still above trend.
The overall S&P Global India Composite PMI Output Index was strong at 56.6, supported by the factory PMI that rose to its highest since November. However, the composite PMI was at a four-month low and down from 58.2 in June.