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Business activity in India’s services sector lost its pace in March. Latest data published by IHS Markit showed that India’s purchasing managers’ index (PMI) for services fell from 55.3 in February to 54.6 in March. A reading above 50 indicates expansion and below the threshold points to contraction.

Even though the reading remains in the expansion zone, there isn't much respite for services providers going ahead in the backdrop of the second wave of infections, especially in Maharashtra. o curb the spread of the coronavirus, the Maharashtra government on Sunday imposed stricter operating guidelines for manufacturers. Malls, theatres and hotels would remain shut until the end of this month. Further, the state government has also called for a lockdown on weekends.

With these recent developments, the outlook for the services sectors, especially in the discretionary space, worsens. “The impact of this is likely to be felt most by the services sector. Indeed, the significant tightening of restrictions in Maharashtra over the weekend included measures such as the closure of shopping malls and recreational facilities until the end of April. By contrast, manufacturing firms are allowed to continue operations. The night curfew imposed in Delhi yesterday has also been targeted at most non-essential services," Shilan Shah, senior India economist at Capital Economics said in a note on 7 April.

According to the PMI survey, service companies expect business activity to increase over the course of the coming 12 months. “Rising client enquiries and hopes for greater vaccine availability were the key reasons underpinning optimism in March," said the report. However, the overall level of confidence was unchanged from February, showed the PMI survey.

“The services industry remains wholly reliant on domestic demand, at the moment, with new export orders falling for a 13th straight month in March. This implies that the sector has nowhere to hide, amid the rising virus pressures domestically," said Miguel Chanco, senior Asia economist at Pantheon Macroeconomics.

"Businesses remained as confident as they were in February about the outlook over the next 12 months, thanks partly to the roll-out of the vaccine. We note, however, that at the current rate of inoculations, herd immunity would still be out of reach this year," he added. Chanco cautioned of a much more painful drop in India’s services PMI for April.

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