Services activity contracts in March, PMI falls to 5-month low amid Covid-19 disruption

New Delhi: Activity in India’s service sector contracted in March as output declined on deteriorating global demand, a private survey showed on Monday. The Covid-19 pandemic dented client demand, particularly in overseas markets, as discretionary spending was knocked by public health measures aimed at stemming the outbreak.

The IHS Markit India Services Business Activity Index recorded 49.3 in March, down from February's 85-month high of 57.5. A reading above 50 indicates expansion, while a figure below signals contraction.

As per the report, business activity was reduced in response to weaker demand as the global COVID-19 pandemic reportedly led a fall in new orders from clients, particularly overseas. That said, the decrease in output was mild overall. Latest survey data pointed to the first fall in order book volumes at Indian service providers since September 2019.


Last month’s data were collected between March 12-27. India announced a 21-day lockdown from March 25.

“The impact of the global COVID-19 pandemic on India's services economy has not been fully realised yet,” said Joe Hayes, Economist at IHS Markit.

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.

Poor conditions in overseas markets led to the sharpest deterioration in foreign demand since exports data were first collected in September 2014.

A sister survey last week showed India’s manufacturing activity to a four-month low in March.

Put together, the Composite PMI Output Index fell to 50.6 in March, down 7 points from February's 57.6 to signal a sharp slowdown in private sector output growth and bringing an abrupt end to the recent strong upward-moving expansion trend.

Future tense, employment stagnant
In response to reduced business requirements, the level of employment across the Indian services sector fell as firms cut workforce numbers to keep operating costs tight. That said, the rate of job shedding was mild as the large majority of firms (93%) left payroll counts unchanged.

“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. Pressure now fully lies on the government to combat the economic challenges the lockdown will cause,” Hayes said.

Overall, employment levels broadly stagnated across India's private sector economy as slight growth in manufacturing was offset by a mild drop in staffing levels across the service sector.