Activities in services, the biggest sector of India's economy, fell for the sixth month in August even as the rate of contraction came down compared to July's reading as the process of unlocking intensified, according to widely-tracked IHS purchasing managers' index (PMI). This forced companies to continue laying off workers, though the rate here also came down from July's.
PMI for services rose to 41.8 in August compared to 34.2 in July. Fifty is the point that separates contraction (below 50) from growth (above 50). This means that the services sector was still some eight points below the growth path. However, the reading was the highest since March when the lockdown was imposed towards the last week of the month due to the outbreak of Covid-19.
The trend is different from the manufacturing sector which grew for the first time in six months. However, due to service
PMI, the manufacturing and services sector activities in the economy continued to contract in August. PMI for combined services and manufacturing rose from 37.2 in July to 46 in August.
Though not strictly comparable, the PMI numbers showed that the gross domestic product was adversely affected in the first two months of the second quarter of the current financial year after falling massively by 23.9 per cent in the first quarter. One of the services segments -- trade, hotels, transport, communication -- fell as high as 47 per cent in Q1. Manufacturing contracted 39.3 per cent in those three months.
Commentary associated with PMI said the ongoing coronavirus pandemic 2019 (Covid-19) restrictions continued to adversely impact client demand and business operations.
Shreeya Patel, Economist at IHS Markit, said," August highlights another month of challenging operating conditions in
the Indian services sector. Sustained periods of closure and ongoing lockdown restrictions in both domestic and foreign markets have weighed heavily on the health of the industry."
Sustained revenue losses through the second quarter and increasing cost burdens led companies to raise charges for the first time since March.
According to respondents, the fall in output was linked to a further weakening of demand conditions during August,
while some businesses remained closed as a result of ongoing lockdown restrictions. The rate of contraction in output was
solid overall, despite easing from the previous survey period as some firms gradually resumed operations.
New business placed at service providers fell for the sixth month running in August amid weak market demand. That said,
the rate of decline was the slowest in five months.
Similarly, new export orders received by Indian service providers fell at a solid pace. The rate of contraction was among the steepest since the start of the series in September 2014.
Reduced business activity saw the Indian service sector operating below capacity. As a result, firms reported job
shedding for a sixth consecutive month. The fall in employment was only modest, however, and much slower than July's record.
Ongoing Covid-19 restrictions and temporary business closure meant that firms were unable to process previously-placed
orders, which led to incomplete work increasing for a third month running. Moreover, the pace of increase was substantial,
and the fastest since the survey began in December 2005.
Looking ahead, sentiment was neutral in August. Two-thirds of panellists expected output in the year ahead to remain
unchanged on current levels. While some firms hoped for the passing of Covid-19, others noted market uncertainty and
expectations of extended lockdown measures to weigh on future activity.
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.
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