India's services activity shrinks for sixth straight month, but pace of decline slows

Thursday's survey adds to the gloom in the service sector, an engine of economic growth and jobs, suggesting a long and painful road to recovery after the economy shrank nearly a quarter in April-June.

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August was the sixth straight month the index was sub-50, the longest such stretch since a 10-month run to April 2014.
New Delhi: Services activity in India contracted for the sixth consecutive month in August though the pace of decline slowed as some firms gradually resumed operations with easing lockdown restrictions, a private survey showed on Thursday.

The IHS Markit Services Purchasing Managers' Index increased to 41.8 in August from July's 34.2 but remained below the 50-mark that separates growth from contraction.

"August highlights another month of challenging operating conditions in the Indian services sector. Sustained periods of closure and ongoing lockdown restrictions in both domestic and foreign markets have weighed heavily on the health of the industry,” said Shreeya Patel, economist at IHS Markit.


The fall in output was linked to a further weakening of demand conditions during August, while some businesses remained closed as a result of ongoing lockdown restrictions. The rate of contraction in output was solid overall, despite easing from before as some firms gradually resumed operations.

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As per the survey report, firms reported job shedding for a sixth consecutive month though the fall in employment was slower than July's record level. Ongoing Covid-19 restrictions and temporary business closures meant that firms were unable to process previously-placed orders, which led to incomplete work increasing for a third month running.

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“Moreover, the pace of increase was substantial, and the fastest since the survey began in December 2005,” it said. New export orders received by Indian service providers also fell.

New business placed at Indian service providers fell for the sixth month running in August amid weak market demand but the rate of decline was the slowest in five months.

A sister survey on Tuesday showed manufacturing activity growing in August for the first time in five months. Put together, the Composite PMI Output Index, which measures combined services and manufacturing output, rose from 37.2 in July to 46 in August, signalling a fifth consecutive decline in private sector business activity.

Business sentiment was neutral after being negative in the previous three months and employment fell at the softest pace since March, according to the survey. Future sentiment was neutral in August, with two-thirds of panelists expecting output in the year ahead to remain unchanged on current levels.
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