India’s services sector growth contracted in March after registering the strongest rise in business activity for over seven years in February, as the COVID-19 outbreak dented client demand, particularly in overseas markets, according to a private survey.
Services Purchasing Managers’ Index (PMI) fell to 49.3 from 57.5 in February, after rising for five consecutive months, according to the survey by data analytics firm IHS Markit. A figure of above 50 indicates expansion, while a sub-50 print signals contraction.
The manufacturing Purchasing Managers’ Index (PMI) data for March, released last week, showed decline to a four-month low of 51.8 from 54.5 in February.
The analytics firm said services companies responded by reducing their workforces as intakes of new business were insufficient to maintain payroll numbers. “Poor conditions in overseas markets led to the sharpest deterioration in foreign demand since exports data were first collected in September 2014. The global COVID-19 pandemic had a far-reaching impact on the ability of firms to source new work intakes from abroad,” it added.
Joe Hayes, economist at IHS Markit, said the impact of the global covid-19 pandemic on India’s services economy has not been fully realised yet. “March PMI data showed business activity falling mildly. Crucially however, the survey data collection (12-27 March) was concluding just as Prime Minister Modi ordered a complete lockdown of the country. 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. Pressure now fully lies on the government to combat the economic challenges the lockdown will cause,” he added.
In response to reduced business requirements, the level of employment across the Indian services sector fell as firms cut workforce numbers to keep operating costs tight. However, the rate of job shedding was mild as the large majority of firms (93%) left payroll counts unchanged, HIS Markit said.