COVID fallout: Services activity contracts to eight-month low in May

NEW DELHI:  Activity in India’s services sector, which contributes the most to the country’s economy, contracted in May as reintroduction of Covid restrictions across the country dented demand, a monthly survey said on Thursday. 

The Nikkei/IHS Markit Services Purchasing Managers’ Index fell to an eight-month low of 46.4 in May from 54.0 in April, sliding below the 50-level by a big margin.

An index below 50 means contraction.

The dismal performance of the services sector, the worst in eight months, was accentuated by a drastic fall in new business orders, which forced companies to cut jobs at the fastest pace since October. 

Despite active Covid cases falling, localised lockdowns in many states have kept the services activities low. 

“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 services sector struggled as the pandemic escalated,” noted Pollyanna De Lima, economics associate director at IHS Markit.

“The intensification of the Covid-19 crisis and associated restrictions suppressed domestic and international demand for Indian services,” she added. 

The survey highlighted that the overall demand contracted at the sharpest rate since August with foreign demand shrinking at the fastest pace since November. 

A disturbing finding of the survey was that services companies are pessimistic about this quarter’s growth prospects as many firms intensified job cuttings.

Decline in business expectation, according to the survey, may force firms to cut jobs further in the coming months. 

Last year also, the services sector had pushed thousands of people out of work.  

High demand for MGNREGA work

• Demand for work under the rural job scheme has shot up in the past two months, data from the MGNREGA portal show.

• In March, 3.36 crore people opted for rural work; this zoomed to 3.52 crore in May and 3.61 crore in April.