Global COVID-19 pandemic pulls service sector in India back into contraction

Having recorded the strongest rise in business activity for over seven years in February, the latest survey data brought this to an abrupt end as services output in India declined in March, according to IHS Markit India Services Purchasing Managers' Index (PMI) released on Monday.

According to firms, the outbreak of the coronavirus disease 2019 (COVID-19) dented client demand, particularly in overseas markets, as discretionary spending was knocked by public health measures aimed at stemming the outbreak.

Firms responded by reducing their workforces as intakes of new business were insufficient to maintain payroll numbers. Input costs rose at the slowest rate in six months as market prices for food and fuel were cut by suppliers.

The IHS Markit India Services Business Activity Index recorded 49.3 in March, down from February's 85-month high of 57.5. The headline figure fell by over 8 points, undoing the strong gains in growth momentum seen throughout 2019 so far.

According to panel members, business activity was reduced in response to weaker demand. The global COVID-19 pandemic reportedly led a fall in new orders from clients, particularly overseas.

The decrease in output was mild overall. March data were collected between March 12 to 27.

The latest survey data pointed to the first fall in order book volumes at Indian service providers since September 2019. Although the drop in demand was modest, it was the sharpest for just over two years.

There were widespread reports of new business receipts struggling due to the COVID-19 outbreak, deterring discretionary spending. A number of firms also mentioned lower sales as a result of liquidity issues.

"Clearly the worse is yet to come as nationwide store closures and prohibition to leave the house will weigh heavily on the services economy as has been seen elsewhere in the world," said Economist at IHS Markit Joe Hayes.

"Pressure now fully lies on the government to combat the economic challenges the lockdown will cause," he said in a statement.

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.