COVID-19 pandemic pulls India’s service sector activity into contraction mode

The worse is yet to come as nationwide store closures and prohibition to leave the house will weigh heavily on the services economy, says economist Joe Hayes of IHS Markit

April 06, 2020 12:05 pm | Updated 12:17 pm IST - New Delhi

Representational image.

Representational image.

India’s services sector activity contracted during March as the COVID-19 pandemic dented demand, particularly in overseas markets, while public health measures aimed at stemming the outbreak curtailed discretionary spending, a monthly survey said on Monday.

The IHS Markit India Services Business Activity Index was at 49.3 in March, down from February’s 85-month high of 57.5, as the new coronavirus pandemic pulled the service sector into contraction.

The headline figure fell by over 8 points, undoing the strong gains in growth momentum seen throughout 2019, the survey said.

In PMI parlance, a print above 50 means expansion, while a score below that denotes contraction.

Also read | RBI announces more measures to fight economic disruptions

“The impact of the COVID-19 pandemic on India’s services economy has not been fully realised yet,” Joe Hayes, Economist at IHS Markit, said, adding that “the survey data collection (March 12-27) was concluding just as Prime Minister Narendra Modi ordered a complete lockdown of the country“.

Hayes further said that “clearly the worse is yet to come as nationwide store closures and prohibition to leave the house will weigh heavily on the services economy, as has been seen elsewhere in the world.”

According to panel members, business activity was reduced in response to weaker demand and firms responded by reducing their workforces as intakes of new business were insufficient to maintain payroll numbers.

Latest survey data pointed to the first fall in order book volumes at Indian service providers since September 2019.

“Pressure now fully lies on the government to combat the economic challenges the lockdown will cause,” Hayes said.

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The survey further noted that there were widespread reports of new business receipts struggling due to the COVID-19 outbreak, deterring discretionary spending. A number of firms also mentioned lower sales as a result of liquidity issues.

Meanwhile, the Composite PMI Output Index that maps both the manufacturing and services sector fell to 50.6 in March, down 7 points from February’s 57.6 to signal a sharp slowdown in private sector output growth and bringing an abrupt end to the recent strong upward-moving expansion trend.

The number of deaths around the world linked to the new coronavirus has crossed over 69,000. In India, more than 4,000 coronavirus cases have been reported so far.

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