India's services sector activity contracts for 4th successive month

The country is gripped in an unprecedented economic downturn which is certainly going to spill over into the second half of this year unless the infection rate can be brought under control.

India's services sector activity remained in deep downturn in June as the COVID-19 pandemic curtailed intakes of new work orders and disrupted business operations, a monthly survey said on Friday.

The IHS Markit India Services Business Activity Index was at 33.7 in June, up from 12.6 recorded in May.

Despite the rise, the Indian services sector activity contracted for a fourth successive month in June.

A print above 50 means expansion and a score below that denotes contraction, as per the IHS Markit India Services Purchasing Managers' Index (PMI).

"India's service sector continued to struggle in June as the country's coronavirus crisis worsened,” said Joe Hayes, Economist at IHS Markit.

Simply put, the country is gripped in an unprecedented economic downturn which is certainly going to spill over into the second half of this year unless the infection rate can be brought under control, Hayes added.

The death toll due to COVID-19 in the country has increased to 18,213 and the number of infections has spiked to 625,544, according to the health ministry.

Hayes further said though some companies have seen activity stabilise, but this is most likely just reflecting closures and temporary suspensions.

While this will have contributed to a rise in the PMI figures, "this certainly isn't a promising sign".

"A large fraction of the survey panel are still reporting falling activity and order book volumes, reflecting an intensely challenging domestic picture in India," Hayes noted.

According to the survey, the slower rate of decline was reflective of some stabilisation in activity levels, with around 59 per cent of firms reporting no change in output since May.

Meanwhile, "only 4 per cent registered growth, while 37 per cent recorded a reduction," it said.

Meanwhile, total new orders fell at a sharp pace during June, which firms attributed to reduced consumption habits.

In some instances, customers had closed their businesses due to the unfavourable environment.

Besides, there was yet another steep drop in export sales.

On the prices front, for a third month running, Indian service providers reported a reduction to their input costs in June and lower expenses were passed through to clients via discounts during the month.

The survey said employment across the Indian service sector fell during June.

Job losses were attributed to lower business requirements, although some companies reported poor staff availability.

Meanwhile, the Composite PMI Output Index, which measures combined services and manufacturing output, rose to 37.8 in June, up from 14.8 in May, but still below the crucial 50 level which separates growth from contraction.

While manufacturing production fell moderately, edging closer to stabilisation, services activity continued to decrease substantially, the survey noted.

The IHS Markit India Services PMI is compiled by IHS Markit from responses to questionnaires sent to a panel of around 400 service sector companies.

The sectors covered include consumer (excluding retail), transport, information, communication, finance, insurance, real estate and business services.

Photograph: PTI Photo