NEW DELHI: Indian economy's largest sector, services, contracted for the first time since June 2015 as the cash crunch due to the government's early November decision to scrap highvalue notes hit demand.Dropping from 54.5 to 46.7 in November, the Nikkei India services Purchasing Managers' Index (PMI) pointed to the sharpest reduction in output for almost three years. Economists have said the impact of demonetisation is expected to hurt economic growth significantly in the current fiscal and some have predicted it could slip below the 7% mark. The 50-point mark sepa rates expansion from contraction. The survey is based on data compiled from monthly replies to questionnaires sent to purchasing executives in about 350 private service sector firms.The latest data comes close on the heels of the manufacturing sector PMI ( purchasing mangers' index ) which showed growth slowed sharply in November on the back of the cash shortage.The government expects some disruption to the economy due to the note ban in the next two quarters and predicts a sharp rebound after that.The services sector survey showed new business declined for the first time since June 2015, leading to a reduction in activity . Correspondingly , backlogs of work rose, while employment increased only marginally . In spite of the falls in output and new orders, optimism regarding future activity improved. Input costs were broadly unchanged, whereas prices charged decreased slightly , the survey showed.Anecdotal evidence highlighted a lack of cash in the economy. Activity decreased in three of the six sub-sectors such as financial intermediation, hotels, restaurants, renting and business activities, the survey showed.Although the scarcity of rupee notes also weighed on manufacturing performance, new order growth was sustained. The rise was, however, insufficient to offset the downturn in services and new business across the private sector as a whole decreased slightly.“The latest set of gloomy PMI figures for the Indian service sector shows that companies were heavily impacted by the 500 and 1,000 rupee notes ban. Cash shortages resulted in fewer new business intakes, which in turn caused a fall in activity and ended a 16-month sequence of expansion,“ Pollyanna De Lima, economist at IHS Markit , and author of the report.“The disruption is expected to be short-lived, however, with many panellists anticipating a pick-up in activity as these high-value banknotes are replaced and black-market firms end their operations. In fact, business confidence improved to a three-month high,“ De Lima said.Service providers recorded higher levels of outstanding business in November, which they commonly associated with delayed payments from clients. Backlogs rose for the sixth straight month, but at the slowest rate since July. Similarly, unfinished work at manufacturers increased at a softer pace.The anticipated replacement of high-value rupee notes, improved advertising campaigns, favourable government policies and the withdrawal of unregulated companies from the market all boosted sentiment during the latest survey period.