Service Sector Activity Remains Restricted By COVID-19

New Delhi, Aug 5: India's services sector activity remained in deep slump in July as coronavirus-induced restrictions stifled demand and forced companies to cease operations and further reduce staff numbers, a monthly survey said on Wednesday.

The IHS Markit India Services Business Activity Index stood at 34.2 in July, slightly higher than 33.7 in June.

Despite the rise, the Indian services sector activity contracted for the fifth successive month in July. A print above 50 means expansion and a score below that denotes contraction, as per the IHS Markit India Services Purchasing Managers' Index (PMI).

"With such a prolonged and significant downturn, any substantial recovery will take many months, if not years. Latest IHS Markit estimates point to an annual contraction in GDP of over 6 per cent in the year ending March 2021," said Lewis Cooper, Economist at IHS Markit.

Survey respondents linked falls in both activity and order books to the adverse impact stemming from the COVID-19 pandemic, with frequent mentions of lockdown measures, weak demand conditions and the temporary suspension of company operations.

"The coronavirus pandemic and subsequent introduction of lockdown measures continued to weigh heavily on the Indian service sector in July. Business activity and new orders dropped again, with the rates of decline remaining rapid overall," Cooper stated.

With overall demand conditions severely muted, service providers made further job cuts in July. The rate of job shedding was the fastest on record, with panellists blaming weak client demand and temporary business closures

"July data, as a whole, provide no real signs that the downturn is slowing down. That's not surprising with lockdown measures still in force, but undoubtedly these will have to be loosened and companies reopen before the sector can move towards stabilisation," Cooper said.

Looking ahead, the 12-month outlook for output was negative for a third successive month, with fears of a substantial economic downturn common among survey respondents.

The Composite PMI Output Index, which measures combined services and manufacturing output, fell from 37.8 in June to 37.2 in July, signalling a further rapid contraction in private sector business activity in July.

Meanwhile, the Reserve Bank of India's Monetary Policy Committee (MPC) on Tuesday started its three-day brainstorming on the bi-monthly monetary policy meet. The six-member committee will announce its decision on August 6.