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Services activity shrinks in May after eight months as curbs hurt

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NEW DELHI :
India’s services activity contracted for the first time in eight months in May as stringent lockdowns imposed to curb the explosive second wave of the pandemic hit domestic business activity and international orders.

Data issued on Thursday by IHS Markit showed India’s purchasing managers’ index (PMI) for services fell to 46.4 in May from 54 in April. A figure above 50 indicates expansion, while a sub-50 print signals contraction.

The manufacturing PMI had fallen to its lowest in 10 months to 50.8 in May, barely managing to remain in the expansion zone, showed data issued on Monday by IHS Markit.

The data analytics firm said service providers struggled in May as the covid-induced crisis worsened, causing renewed declines in new business and output. “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,” it said.

International demand for Indian services also worsened, with new export business dropping at the sharpest pace in six months. The decline is attributed to international travel restrictions and business closures for the contact-sensitive services sector.

IHS Markit said although service providers foresee renewed activity over the next 12 months, the overall degree of optimism has weakened to the lowest since last August. “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,” it added.

Pollyanna De Lima, economics associate director at IHS Markit, said while PMI data released on Monday showed that the manufacturing industry managed to keep its head above water in May, the services sector struggled as the pandemic escalated. “The intensification of the covid-19 crisis and associated restrictions suppressed domestic and international demand for Indian services. Total sales decreased for the first time in eight months, while the fall in external orders was the most pronounced since last November,” she added.

Lima said services companies reduced payroll numbers to the greatest extent in seven months amid efforts to keep a lid on expenses, given the deterioration in new business. “Anecdotal evidence indicated that a fall in staff expenses indeed helped curb the rate of input price inflation. Yet, the overall rise in cost burdens was historically sharp as prices for a wide range of inputs and fuel continued to surge. Only a small proportion of firms shared additional cost burdens with their clients, resulting in only a marginal increase in services fees,” she added.

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