India’s services sector contracted for the third month in a row in July, with fresh job losses for the eighth successive month, as per the Purchasing Managers’ Index (PMI) which stood at 45.4 in the month, marginally better than the 41.2 recorded in June.
A score of 50 on the index indicates no change in activity. For the first time in a year, services firms had a pessimistic outlook for the coming 12-month period, driven by worries about the COVID-19 pandemic, inflation and profit margins.
Consumer services was the worst-affected sector during July, indicating that the unlocking across States has failed to lift confidence in the resumption of contact-sensitive activity, while transport and storage was the only sector to see higher sales in the past month.
“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,” IHS Markit said in its Services PMI statement for India.
The services’ sector performance in July is in contrast to the manufacturing sector which recorded its highest PMI level in three months and the first pause in job losses for the first time since the pandemic’s onset last March.
“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.
India’s overall output, manufacturing and services combined, thus declined for the third month in a row as the Composite PMI Index was 49.2 in July from 43.1 in June.
“Aggregate new orders fell for the third successive month in July, albeit fractionally. Private sector employment decreased for the seventeenth month in a row in July,” the statement said.
Blaming the ongoing COVID-19 situation for the ‘somewhat disappointing’ data from the services sector that is ‘so crucial for the Indian economy’, Ms. De Lima said both new business and output fell solidly over the month, but there was a slowdown in the pace of contraction.
“Uncertainty over when the pandemic will end, as well as concerns about inflationary pressures and financial troubles, dampened business confidence in July. Service providers were pessimistic towards the outlook for business activity for the first time in a year. Downbeat assessments and ongoing declines in new work caused another round of job-shedding in the service sector,” she pointed out.
While new work orders continued to shrink due to challenging domestic conditions, services firms observed a further deterioration in international demand for services, IHS Markit noted, stating that the decline remained as sharp as June.
At the same time, input costs surged as prices for a wide range of items, including fuel, medical equipment and raw materials surged, as per the 400 survey participants who were contacted between July 12 and 28 for compiling the index.
“The overall rate of inflation quickened from June and outpaced its long-run average. While the quickest increase in input costs was recorded in the Real Estate & Business Services category, charge inflation was most pronounced in the Transport & Storage segment,” the firm said.
“Output charges also rose at a quicker pace in July, the fastest in the current five-month sequence of increase, but here the rate of inflation was below its long-run trend. Companies that hiked their fees cited the partial pass-through of greater cost burdens to clients,” the statement said, indicating that services firms are passing on the higher input costs that could feed into retail inflation.
