The HSBC's Services Purchasing Managers Index (PMI) for October declined significantly to 53.8 in October from 55.8 in September. Since November 2011, the index has kept above the 50-mark which indicates expansion.
Thus, the HSBC India Composite Output Index, which maps both services and manufacturing activity, stood at 53.5 during the month, down from September reading of 55.
"The services sector slowed in October, but remained firmly in expansionary territory. Growth in new orders eased slightly and firms scaled back the pace of hiring," HSBC Chief Economist for India and ASEAN Leif Eskesen said.
Output in the Indian service sector increased, amidreports of stronger demand and the rate of expansion, though "solid", was slowest since April. However, service providers remain optimistic about the short-term business outlook.
Earlier, an HSBC survey had shown that India's manufacturing sector improved in October, driven by new orders, but persistent power shortages weighed on production.
Moreover, the outstanding business rose reportedly due to delay in payments in October, which to some extent could also explain the slower pace of growth in business activity, Eskesen said.
"Inflation readings continued to tick up, with higher raw material costs and solid demand keeping inflation pressures firm. The latter explains why the RBI remains hesitant about easing monetary policy," he added.
Inflation as measured by all indices has remained elevated and Wholesale Price Index-based inflation has remained above the Reserve Bank's comfort zone of 5 to 5.5 per cent for quite some time now.
In the mid-year monetary policy review on October 30, RBI left the key interest rate unchanged but reduced cash reserve ratio by 0.25 per cent to infuse additional liquidity of up to Rs 17,500 crore into the system.
RBI kept the repo rate and reverse repo rate unchanged at 8 per cent and 7 per cent respectively.
Meanwhile, on the employment front, job creation was recorded at private sector firms in India during October but the pace of growth was only slight and the slowest in three months, HSBC said.
Energy , transportation and water cost is making services expensive along with double taxation in form of service tax . India should use solar infinite free energy , free rain water. We should opt for cheaper electric and railway traction and transport.Service taxes should go as they are already taxed as income tax both at service provider and receiver ends.Services are great employment and greatest GDP generator so nothing must come in its way.