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Service sector sees first contraction in eight months

"According to panel members, the fall in output stemmed from the escalation of the pandemic and the reintroduction of restrictions," it added.

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New Delhi: India’s service sector witnessed first contraction in eight months amid Covid-19 induced complete or partial lock-downs in almost every state in May 2021.

“At 46.4 in May, down from 54.0 in April, the seasonally adjusted India Services Business Activity Index was in contraction territory for the first time in eight months. The latest reading pointed to a solid rate of reduction that was nevertheless slower than those seen in the aftermath of the COVID-19 outbreak,” revealed IHS Markit in its monthly report released on Thursday.

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“According to panel members, the fall in output stemmed from the escalation of the pandemic and the reintroduction of restrictions,” it added.

The report stated that Indian service providers struggled in May, with the intensification of the COVID-19 crisis causing renewed declines in new business and output. Firms became increasingly worried about growth prospects, with positive sentiment slipping to a nine-month low. Jobs were shed to the greatest extent since last October.

Growth of new work intakes ground to a halt in May, with companies noting the first decline in sales since September 2020. Survey participants indicated that demand was dampened by the intensification of the COVID-19 crisis. International demand for Indian services also worsened, with new export business falling at the quickest rate in six months. The drop was attributed to international travel restrictions and business closures.

Pandemic-related worries and falling sales led services companies to reduce workforce numbers again during May. The decline was modest, but the quickest in the current six-month sequence of job shedding.

May data pointed to a renewed decline in private sector activity across India as the service economy dipped back into contraction. The Composite PMI Output Index of manufacturing and service sector taken together was down from 55.4 in April to 48.1, a reading indicative of a moderate pace of reduction. Although manufacturing production growth was sustained, the increase was the slowest in the current ten month sequence of expansion. The Manufacturing PMI data was released on Tuesday.

Commenting on the latest survey results, Pollyanna De Lima, Economics Associate Director at IHS Markit, said, “While the manufacturing industry managed to keep its head above water in May, the service sector struggled as the pandemic escalated. The intensification of the COVID-19 crisis and associated restrictions suppressed domestic and international demand for Indian services.

‘Total sales decreased for the first time in eight months, while the fall in external orders was the most pronounced since last November. Amid efforts to keep a lid on expenses given the deterioration in new business, services companies reduced payroll numbers to the greatest extent in seven months. Concerns towards the outlook, evidenced by a dip in sentiment, could prevent job creation in the near-term.”

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