Services pick up, but still in contraction zone

Despite showing a rise over July, services Purchasing Manages’ Index continued in the contraction zone in August. Pandemic restrictions and job losses have been weighing heavily on services PMI.

The Services Business Activity Index of IHS Markit rose sharply from 34.2 in July to 41.8 in August, the highest since March. Nevertheless, the latest reading, by coming in below the 50 neutral value, indicated continued decline in business activity.

The ongoing pandemic restrictions continued to adversely impact client demand and business operations. New business and output continued to contract at marked rates, albeit slower than the records seen in April and May. Restrictions also contributed to a record increase in outstanding business.

Reduced business activity saw the Indian service sector operating below capacity. Ongoing Covid19 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.

Meanwhile, sustained revenue losses through the second quarter and increasing cost burdens led companies to raise charges for the first time since March. The rate of input price inflation was slightly faster than seen in July, but marginal overall. Higher fuel costs were cited as the key reason behind higher input prices. In line with rising cost burdens, output charges grew at a marginal pace. Firms mentioned the passing on of higher costs to customers.

"August highlights another month of challenging operating conditions in the Indian services sector... Output and new work continue to fall at solid rates, while restrictions meant that firms were often unable to complete projects. Backlogs of work accumulated to the greatest extent in almost 15 years of data collection. That said, the survey showed signs of a potential recovery,” said Shreeya Patel, economist at IHS Markit.