Services sector activity, which makes up more than half of India’s gross domestic product (GDP), contracted for the fourth consecutive month in June due to the unfolding coronavirus pandemic, although the pace of contraction softened.
According to data released by IHS Markit, services Purchasing Manager’s Index (PMI) in June stood at 33.7, up from 12.6 in May. A figure of above 50 indicates expansion, while a sub-50 print signals contraction.
“Although the downturn lost further momentum in June, it remained excessively strong as the covid-19 pandemic curtailed intakes of new work and disrupted business operations. The slower rate of decline was reflective of some stabilisation in activity levels, with around 59% of firms reporting no change in output since May. Meanwhile, only 4% registered growth, while 37% recorded a reduction," IHS Markit said.
The manufacturing Purchasing Manager’s Index (PMI) released on Wednesday showed a decline at 47.2 in June surging from 30.8 recorded in May, signalling faster normalision of manufacturing activity since the nationwide lockdown was lifted on 1 June.
"India's services sector continued to struggle in June as the country's coronavirus crisis worsened. Simply put, the country is in the grips of an unprecedented economic downturn, which is certainly going to spill over into the second half of this year unless the infection rate can be brought under control," said Joe Hayes, economist at IHS Markit.
As conditions continued to deteriorate in June, surveyed services companies became more pessimistic towards their prospects over the coming 12 months. “Business confidence slid to a survey low and also pointed to strongly negative expectations towards activity levels in the year ahead. The heightened risk of a protracted recession was commonly noted by pessimistic firms," the data analytics firm added.
Employment across the Indian services sector fell during June. “Job losses were attributed to lower business requirements, although some companies reported poor staff availability. Consequently, there were signs of capacity pressures building in June as outstanding contracts rose, despite overall activity continuing to fall sharply," IHS Markit added.