India Services Sector Contracts For The First Time In 8 Months

The IHS Markit Services Purchasing Managers' Index in India fell to a nine-month low of 46.4 in May from 54.0 in April, sliding below the 50-level that separates growth from contraction for the first time in eight months.

"PMI data indicated that Indian service providers struggled in May, with the intensification of the COVID-19 crisis causing renewed declines in new business and output," IHS Markit said in a release.

"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. Cost inflationary pressures cooled, but remained sharp by historical standards, with the latest rise the slowest since January. Selling prices meanwhile increased only slightly as several companies left their fees unchanged due to subdued demand conditions," a release by IHS Markit has said.

At 46.4 in May, down from 54.0 in April, the seasonally adjusted India Services Business Activity Index was in contraction territory for the first time in eight months. The latest reading pointed to a solid rate of reduction that was nevertheless slower than those seen in the aftermath of the COVID-19 outbreak. According to panel members, the fall in output stemmed from the escalation of the pandemic and the reintroduction of restrictions.

Commenting on the latest survey results, Pollyanna De Lima, Economics Associate Director at IHS Markit, said: "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. "The intensification of the COVID-19 crisis and associated restrictions suppressed domestic and international demand for Indian services. Total sales decreased for the first time in eight months, while the fall in external orders was the most pronounced since last November.

Amid efforts to keep a lid on expenses given the deterioration in new business, services companies reduced payroll numbers to the greatest extent in seven months. Concerns towards the outlook, evidenced by a dip in sentiment, could prevent job creation in the near-term. "Anecdotal evidence indicated that a fall in staff expenses indeed helped curb the rate of input price inflation. Yet, the overall rise in cost burdens was historically sharp as prices for a wide range of inputs and fuel continued to surge. Only a small proportion of firms shared additional cost burdens with their clients, resulting in only a marginal increase in service fees".