India’s services sector activity, which accounts for about half the country’s gross domestic product (GDP), dived in April reflecting a sharp contraction in private sector business activity as a month and a half long countrywide lockdown shackled Asia’s third biggest economy.
A key gauge of India’s services sector, the Purchasing Managers’ Index or PMI, plunged to a record 5.4 from 49.3 in March, IHS Markit, the firm which compiles the data, said on Wednesday.
About 97% respondents reported a reduction in output, indicating the impact of the Covid-19 pandemic. Restrictions on the movement of citizens and business shutdowns were the key factors causing output and demand to fall at unprecedented rates.
The rise in spare capacity was the strongest ever recorded in the survey history, and the rate of job shedding was a survey record, even though 90% of the respondents said they had the same number of workers. On Monday, IHS Markit reported a drop in India’s manufacturing PMI to 27.4 in April from 51.8 in March.
IHS Composite PMI Output Index, which gauges combined services and manufacturing output, also sank to a new record low in April. At 7.2, the index fell from 50.6 in March and was indicative of an unprecedented decline in private sector business activity. Composite indices are weighted averages of comparable manufacturing and services indices. Weights reflect the relative size of the manufacturing and service sectors according to official GDP data.
The survey signalled a further erosion of business confidence in April. Expectations towards future output slumped for a second successive month to their weakest since December 2015. IHS survey showed respondents expect a protracted decline in the economy.
“Taking the contraction in both Manufacturing and Services activity together, historical correlation as per Markit suggests that India’s GDP may contract by -15% year-on-year in Q2 2020, which is a tad lower than the 12.4% decline expected by us, pointing to modest downside risks to our current projections,” Rahul Bajoria, an analyst with Barclays Capital said in a note.
Measures to stem the spread of the coronavirus disease, such as restrictions on the movement of citizens and business shutdowns, were the key factors causing output and demand to fall at unprecedented rates. The impact of the pandemic was particularly striking in export markets, with the entire survey panel registering lower overseas sales, IHS said in a statement released today.
Indian service providers recorded a sharp drop in operating costs, which was the strongest since data collection began in December 2005. The drop in expenses were a result of the lockdown, as firms observed lower running costs due to either partial or complete shutdowns. Consequently, firms were able to reduce their fees in an effort to stimulate sales.
Input and output prices fell when compared to March, although respective rates of deflation were stronger at manufacturers than service providers. The rate of deflation was a new survey record, it said.