Services activity contracts in May after 8 months

India’s services activity contracted for the first time in eight months in May amid localised lockdowns to curb the second wave of Covid-19, with positive sentiment slipping to a nine-month low and jobs being shed to the greatest extent since last October, a private survey showed Thursday.

The IHS Markit India Services Business Activity index fell to 46.4 in May from 54 in April. A reading above 50 indicates expansion, while a sub-50 one signals contraction.

“The intensification of the Covid-19 crisis and associated restrictions suppressed domestic and international demand for Indian services,” said Pollyanna De Lima, economics associate director at IHS Markit.

The IHS Markit India Services PMI is compiled 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.

As per the survey report, Real Estate & Business Services was the worst-affected segment out of the five monitored categories, recording the quickest declines in both new business and output, whereas Transport & Storage registered substantial increases in activity and sales.

IHS Markit said the 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,” it added.

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.


While a fall in staff expenses indeed helped curb the rate of input price inflation, the overall rise in cost burdens was “historically sharp” as prices for a wide range of inputs and fuel continued to surge, IHS Markit said, adding that only a small proportion of firms shared additional cost burdens with their clients, resulting in only a marginal increase in services fees.

A sister survey on Tuesday showed manufacturing activity dropping to the lowest in 10 months in May at 50.8. Taken together, the Composite PMI Output Index was down to 48.1 from 55.4 in April, a reading indicative of a moderate pace of reduction and a renewed decline in private sector activity across India as the service economy dipped back into contraction.

“While PMI data released at the start of the month showed that the manufacturing industry managed to keep its head above water in May, the service sector struggled as the pandemic escalated,” De Lima said.

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