Covid-19 resurgence pushes service sector into contraction: IHS Markit

Indian service providers struggled in May with the intensification of Covid-19 crisis causing renewed declines in new business and output, according to the latest IHS Markit Services Purchasing Managers' Index (PMI) released on Thursday.

Firms became increasingly worried about growth prospects with positive sentiment slipping to a nine-month low. Jobs were shed to the greatest extent since last October.

Cost inflationary pressures cooled but remained sharp by historical standards with the latest rise, the slowest since January. Selling prices meanwhile increased only slightly as several companies left their fees unchanged due to subdued demand conditions.

At 46.4 in May, down from 54 in April, the seasonally adjusted India Services Business Activity Index was in contraction territory for the first time in eight months.

The latest reading pointed to a solid rate of reduction that was nevertheless slower than those seen in the aftermath of Covid-19 outbreak. According to panel members, the fall in output stemmed from the escalation of the pandemic and the reintroduction of restrictions.

Growth of new work intakes ground to a halt in May with companies noting the first decline in sales since September 2020. Survey participants indicated that demand was dampened by the intensification of Covid-19 crisis.

International demand for Indian services also worsened with new export business falling at the quickest rate in six months. The drop was attributed to international travel restrictions and business closures.

Although service providers foresee activity growth over the course of coming 12 months, the overall degree of optimism weakened to the lowest since August 2020. Anecdotal evidence indicated that the resurgence in Covid-19 cases and lingering restrictions were key factors dampening confidence.

"The overall rise in cost burdens was historically sharp as prices for a wide range of inputs and fuel continued to surge," said Pollyanna De Lima, Economics Associate Director at IHS Markit. "Only a small proportion of firms shared additional cost burdens with their clients, resulting in only a marginal increase in services fees."

Pandemic-related worries and falling sales led services companies to reduce workforce numbers again during May. The decline was modest but the quickest in the current six-month sequence of job shedding.

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.

( With inputs from ANI )