CONTRACTION IN SERVICES SECTOR SLOWS IN AUGUST

Activity shrinks for the sixth month in August, with index at 41.8; firms cut jobs

Activity in services, the biggest sector of India’s economy, fell for the sixth month in August even as the rate of contraction slowed, according to a monthly survey released on Thursday, as companies gradually resumed operations. This forced companies to continue laying off workers, showed the widely tracked IHS Markit purchasing managers’ index (PMI), though at a slower rate than seen in July.

Activities in services, the biggest sector of India’s economy, fell for the sixth month in August even as the rate of contraction slowed, according to a monthly survey released on Thursday, as companies gradually resumed operations. This forced companies to continue laying off workers, showed the widely tracked IHS Markit purchasing managers’ index (PMI), though at a slower rate than seen in July.

PMI for services rose to 41.8 in August, compared to 34.2 in July, remaining eight points below the 50-point mark that separates contraction (below 50) from growth (above 50). However, the reading was the highest since March when a nationwide lockdown was imposed in the last week of the month to contain the spread of Covid-19.

The trend is different from the manufacturing sector, which grew for the first time in six months in August.

However, owing to services, the combined services and manufacturing PMI rose from 37.2 in July to 46 in August, still remaining in contraction zone.

Though not strictly comparable, the PMI numbers show gross domestic product was adversely affected in the first two months of the second quarter (Q2) of the current fiscal year, after falling 23.9 per cent in the first quarter (Q1). One of the services segments — trade, hotels, transport, communication — fell as much as 47 per cent in Q1. Manufacturing contracted 39.3 per cent in those three months. Shreeya Patel, economist at IHS Markit, said, “August highlights another month of challenging operating conditions in the 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.”

Revenue loss and increasing cost burden led companies to raise charges for the first time since March. According to respondents, the fall in output was linked to a further weakening of demand, while some businesses remained closed as a result of the lockdown restrictions.

New business orders placed at service providers fell for the sixth straight month in August amid weak market demand, though the rate of decline was the slowest in five months.