Activity in India’s services sector continued to expand in March, but at a slower pace with rising Covid-19 cases in the country resulting in lower footfalls and consumer uncertainty, a private survey showed on Wednesday.
The IHS India Services Business Activity Index eased to 54.6 in March from 55.3 in February, suggesting moderation in growth.
The 50-point mark separates expansion from contraction. But it should be noted that the PMI is a month-over-month indicator, showing improvement over the previous month, and not over the previous year.
While new orders saw an expansion in March, some firms mentioned that low footfall, consumer uncertainty and the COVID-19 crisis led to a reduction in activity at their units. External demand for Indian services continued to worsen, with new orders from abroad decreasing for the thirteenth straight month. companies that noted higher output linked the upturn to the elections, rising sales and improved demand.
Pollyanna De Lima, economics associate director at IHS Markit said that while the elections supported the uptick in demand, the Covid-19 pandemic and reduced footfall restricted the upturn. “The escalation of the pandemic and the reinstatement of restrictions could cause a notable slowdown in growth during April. Service providers hope for an improvement in vaccine availability, which would curb the spread of the disease and support the economy,” said De Lima.
Optimism towards the year-ahead outlook for business activity was sustained, but the overall level of confidence was unchanged from February and remained below its long-run average, she added.
Transport & Storage sector posted a strong performance in March, which recorded sharp and accelerated increases in sales and business activity. Consumer Services and Finance & Insurance remained in expansion mode, while information & Communication and Real Estate and Business Services posted declines in new work and business activity.
This comes days after goods and services tax revenue posted a record high collection of 1.23 trillion in March. Direct tax collections have also breached the revised budget estimates of Rs 9.05 trillion, which is expected to narrow the fiscal deficit from the estimated 9.5 per cent of GDP.
The upturn was associated with the elections, higher demand and successful marketing. Growth was curbed by the detrimental impact of the COVID-19 pandemic on footfall, the note said. India reported a record daily high of new coronavirus cases on Wednesday with over 1.15 lakh new infections being reported in the last 24 hours.
Reserve Bank of India governor Shaktikanta Das on Wednesday said that the recent surge in the covid-19 cases has created uncertainty over economic growth recovery. While Maharashtra imposed a partial lockdown on Sunday, Delhi declared a night curfew.
Services companies reported higher expenses in March. The rate of input cost inflation was sharp and outpaced its long-run average, despite slowing from February's eight-year high.
India’s retail inflation, measured by the Consumer Price Index (CPI), rose to 5.03 per cent in the month of February, which falls within the Reserve Bank of India’s upper inflation margin of 6 per cent.
Meanwhile, the seasonally adjusted IHS Markit India Manufacturing Purchasing Managers' Index released on Monday showed that manufacturing activity fell to a seven month low at 55.4 in March, compared to in 57.5 February.