India's service sector shrinks to a six-month low in September

In September, India's services industry fell to a six-month low, led by a easing of demand amid high inflation, according to a private survey.

The S&P Global India services Purchasing Managers' Index fell to 54.3 in September from August's 57.2, much lower than the expectations of the Reuters poll for a gentle drop to 57.0.

The index fell to its lowest since March, despite staying above the 50 mark separating growth from contraction for the fourteenth consecutive month - the longest stretch of expansion since October 2016 - the longest stretch of expansion since October 2016.

The Indian service sector has overcome many adversities in recent months, with the latest PMI data showing a strong performance despite some loss of growth momentum in September, said Pollyanna De Lima, economics associate director at S&P Global Market Intelligence.

Since March, the new business sub-index fell significantly to its lowest since March, but it was above 50 for the fourteenth month in a row.

International demand, which hasn't been revived since the outbreak of the epidemic, remained sub-50 amid global woes, although the drop in September was the weakest since January.

As firms stepped up their prices for a ninth month as they faced higher energy, food, labour and material costs, demand slowed.

The Reserve Bank of India RBI has raised interest rates by 190 basis points since May to stem inflation and offset some of the effects of aggressive U.S. Federal Reserve hikes that have weakened many currencies, including the rupee.

Foreign reserves in India have declined by nearly $100 billion to $545 billion after the RBI tried to shore up the rupee. The Reuters poll found that they were expected to fall to $523 billion by the end of the year.

The RBI will hike interest rates in order to protect the rupee and contain price pressures because of currency instability as imported items become more costly, according to De Lima.

An increase in inflation could damage consumer spending, weaken business confidence and test the resilience of the Indian service sector in the coming months. The sector's hiring continued for the fourth month, but there were fewer jobs created compared to August.

The future activity sub-index, which measures optimism, rose to its highest in almost eight years, giving hopes of brighter growth.

The S&P Global India Composite PMI Output Index fell to 55.1 from 58.2 in August, as both the manufacturing and services sectors cooled on falling demand.