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Indian Service Sector Stuck In Contraction, Business Activity Falls Again: Report

As per IHS Markit, the latest data also pointed to an intensification of inflationary pressures across the sector.

NEW DELHI — A new report by the British information provider, IHS Markit Services, has said that the Indian service sector remained in the red during July largely due to the Covid-19 pandemic and local restrictions. The latest IHS Markit Services Purchasing Managers’ Index (PMI) was released on Aug. 4.

Business activity, new orders, and employment declined further, but in all cases, rates of contraction moderated from June. Looking ahead, firms were pessimistic about the 12-month outlook for output for the first time in a year, as per the report.

The latest data also pointed to an intensification of inflationary pressures across the sector. The seasonally adjusted India Services Business Activity Index was in contraction territory for the third month in a row.

However, the latest reading pointed to a slower rate of reduction. Panel members that reported lower output cited subdued demand conditions amid the Covid-19 crisis.

New work intakes also fell for the third month running in July, albeit at a softer pace than in June. In addition to challenging conditions domestically, firms observed a further deterioration in international demand for services.

New business from abroad decreased at a sharp pace that was little changed from June.

Consumer services were the worst-affected segment, noting the quicker declines in new orders and output out of the four categories for which contractions were recorded.

Transport and storage was the only sub-sector to register a growth of business activity and sales. In line with sustained falls in new work, there was a further reduction in service sector jobs during July.

Employment contracted for the eighth consecutive month, albeit at a moderate pace that was slower than that seen in June.

Another factor weighing on jobs was an overall view that business activity will decline over the course of the coming 12 months. Companies were pessimistic for the first time in a year.

The downbeat assessment for output stemmed from concerns over the pandemic, margins, and inflation. Indeed, input costs increased further in July.

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.

The panel is stratified by detailed sector and company workforce size based on contributions to GDP.

Survey participants reported higher prices paid for a wide range of items such as fuel, medical equipment, and raw materials. The overall rate of inflation quickened from June and outpaced its long-run average.

“The subdued performance of services more than offset a rebound across manufacturing, causing further contractions in private sector sales, output, and employment,” said Pollyanna De Lima, Economics Associate Director at IHS Markit.

The Indian service sector has been shrinking in the previous month as well, as per IHS Markit last month’s report. The upturn was associated with elections, higher demands, and successful marketing growth was curbed by the detrimental impact of the Covid-19 pandemic on footfall.

The marketing sector, however, showed remarkable growth in striking back after lockdown.

(With inputs from ANI)

Edited by Abinaya Vijayaraghavan and Praveen Pramod Tewari