NEW DELHI: Business activity across India’s services sector contracted sharply in May after a historic decline in April as the coronavirus-induced lockdown led to collapse in consumer demand.
The services Purchasing Manager’s Index (PMI) released by IHS Markit stood at 12.6 in May, slightly better than 5.4 recorded in April, but still way below the 50-mark that divides contraction from expansion.
“Spare capacity continued to rise, albeit to a far lesser degree than in May as prolonged shutdowns led to a rise in incomplete work at some companies. Meanwhile, employment continued to fall in response to weak demand and expectations of further challenging conditions," IHS Markit said.
Data released on Monday had showed the manufacturing PMI fell sharply at 30.8 in May, though slightly better than 27.4 recorded in April, forcing enterprises to slash headcount at the quickest pace in over 15 years.
The data analytics firm said new business from overseas markets collapsed on an unprecedented scale once again during May, with around 95% of surveyed companies reporting a fall in foreign demand when compared to April. “In response to absent demand pressures and low business requirements, employment at Indian service sector companies was reduced during the latest survey period. The rate of job shedding remained strong by historical comparisons, despite easing since April," it added.
Lower staffing levels also coincided with a further deterioration in business sentiment. “Output expectations for the coming 12 months slumped to their most negative since records began in December 2005 amid forecasts of prolonged economic weakness domestically and overseas," it said.
Joe Hayes, economist at IHS Markit said service sector activity in India is still effectively on hold as output fell at an extreme rate once again during May. “Given the stringency of the lockdown measures imposed in India, it is no surprise to see the severity of the declines in April and May. With economic output set to fall enormously in the first half of 2020, it is clear that the recovery to pre-COVID-19 levels of GDP is going to be very slow," he added.
The government has extended mobility restrictions in containment zones till end June while allowing economic activity to return to near-normal in the rest of the country in a phased manner. Most economists expect GDP to contract at least by 5% in FY21.