India's service sector remains severely restricted by COVID-19 lockdown: IHS Markit

New Delhi [India], Aug 5 : The Indian service sector remained severely restricted by lockdown measures implemented to curb the coronavirus disease 2019 (COVID-19) pandemic in July, according to the latest PMI survey data released on Wednesday.
Further substantial reductions in both activity and inflows of new work were recorded as ongoing lockdown restrictions stifled demand and forced companies to cease operations.
Subsequently, firms made further cuts to staff numbers with the rate of job shedding the most marked on record. Looking ahead, the 12-month outlook for the output was negative for a third successive month, with fears of a substantial economic downturn common among survey respondents.
The IHS Markit India Services Business Activity Index registered 34.2 in July and despite rising slightly from 33.7 in June, signalled a further rapid reduction in service sector output.
Moreover, the latest reading was among the lowest recorded in nearly 15 years of data collection, surpassed only by the unprecedented falls in the previous three months. Central to the ongoing downturn was a further drop in sales.
Total new business declined for a fifth successive month with the rate of contraction little changed from June and remaining severe.
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.
Faring worse still was foreign demand for Indian services with the respective seasonally adjusted index posting well below the 50 mark in July for the fifth month running and signalling a substantial reduction in foreign demand.
The latest decline in new export orders was steeper than that for a total new business but the least severe since March.
"July data as a whole provides no real signs that the downturn is slowing down," said Lewis Cooper, Economist at IHS Markit.
"That is 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."
With such a prolonged and significant downturn, any substantial recovery will take many months, if not years, said Cooper.
"Latest IHS Markit estimates point to an annual contraction in GDP of over 6 per cent in the year ending March 2021," he added.
The IHS Markit India Services PMI is compiled from responses to questionnaires sent to a panel of around 400 service sector companies. The sectors covered include consumer (excluding retail), transport, information, communication, finance, insurance, real estate and business services.
The panel is stratified by detailed sector and company workforce size based on contributions to GDP.
IHS Markit is a world leader in critical information, analytics and solutions for the major industries and markets that drive economies worldwide. The company delivers next-generation information, analytics and solutions to customers in business, finance and government.