India’s services sector activities contracted further in June as the intensification of the Covid crisis and reintroduction of containment measures restricted demand, revealed a monthly survey on Monday. This follows close on the heels of the factory output data registering a sharp decline during the period.
The seasonally adjusted India Services Business Activity Index — compiled by IHS Markit — fell from 46.4 in May to 41.2 in June, as new work intake and output contracted at the fastest rate since July 2020, which prompted companies to reduce employment again.
In Purchasing Managers’ Index (PMI) parlance, the 50-point mark separates expansion from contraction.
“Given the current Covid situation in India, it was expected that the services sector would take a hit. The PMI data for June showed that the quicker declines in new business, output, and employment were sharp, but softer than those recorded in the first lockdown,” said Pollyanna De Lima, economics associate director at IHS Markit.
“Uncertainty about the path of the pandemic restricted business confidence among services firms, which were generally neutral in their forecasts for output in the year ahead. The overall level of sentiment slipped to a 10-month low,” she added.
She, however, pointed out that with India expanding its vaccine options and the government announcing ambitious plans to immunise the entire adult population by the end of the year, “it is hoped that the pandemic can be brought under control and a sustainable economic recovery can begin”.
Services have the maximum share in India’s gross domestic product (GDP), with over 57 per cent contribution.
Even the global demand for Indian services deteriorated in June, with new export orders falling for the 16th consecutive month.
Meanwhile, the overall level of business sentiment was down for the third month in a row in June, reaching its lowest mark since last August.
Private sector companies in India noted a second successive monthly decline in business activity during June, as market conditions remained challenging due to the escalation of the pandemic. The Composite PMI Output Index, which measures the combined services and manufacturing output, fell from 48.1 in May to 43.1 in June, signalling the sharpest rate of reduction since July 2020.
Meanwhile, rising prices of edible oils and protein-rich items pushed retail inflation to a six-month high of 6.3 per cent in May, breaching the comfort level of the Reserve Bank of India and thus, rendering a reduction in interest rates a difficult proposition in the near term.
Last week, the agency had said the second wave of pandemic, coupled with local lockdown, pushed manufacturing activities in reverse gear as PMI for June dipped to 48.1. Manufacturing has around 17 per cent share in GDP.
The numbers of these two sectors are expected to affect GDP growth rate during the April-June quarter.
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