Services activity dipstolowestever
The services Purchasing Managers’ Index plunged to an unprecedented 5.4 in April from 49.3 in March
NEW DELHI: India’s services sector, accounting for more than half of the nation’s gross domestic product, collapsed to the lowest level in the world, stoking fears that the economy is headed for a recession as a crushing lockdown shut businesses and kept consumers indoors.
The services Purchasing Managers’ Index (PMI) for India sank to an unprecedented 5.4 in April from 49.3 in March, the sharpest deterioration in services activity since IHS Markit started collecting the data in December 2005. A reading below 50 indicates activity is shrinking.
Wednesday’s data indicates services have been hit worse than the manufacturing sector. Data released last week showed manufacturing PMI dropped to a record low of 27.4 in April from 51.8 in March.
The data paints a grim picture of the economy, which by many economists’ estimates is set to contract for the first time in more than four decades.
“Historical comparisons with GDP (gross domestic product) data suggest India’s economy contracted at an annual rate of 15% in April. It is clear that the economic damage of the covid-19 pandemic has so far been deep and far-reaching in India, but the hope is the economy has endured the worst and things will begin to improve as lockdown measures are lifted,” said Joe Hayes, an economist at IHS Markit.
India’s nationwide lockdown, considered the severest in the world, has led to massive retrenchment and loss of output. Rating agency Crisil Ltd last week said the lockdown
DATA SHOWS SERVICES HAVE BEEN HIT WORSE THAN MANUFACTURING SECTOR ACTIVITY
could lead to permanent loss of real GDP of around 4% in FY21. India’s unemployment rate climbed to a staggering 27.1% in the week to May 3 and some 121.5 million Indians lost jobs in April, data released by the Centre for Monitoring of Indian Economy showed.
In the latest extension of lockdown by two weeks till May 17, government has relaxed rules for restarting economic activities, especially for green and orange zones, which either don’t have any or have low incidences of coronavirus cases. However, businesses are treading cautiously given existing supply bottlenecks and migrant workers leaving for home states.
With continued disruptions, economists expect India’s GDP to contract in FY21. Swiss Bank UBS has projected the economy to shrink by 0.4% assuming current mobility restrictions are lifted by mid-May, and economic activity is largely back to normal by end-June. However, if lockdown is extended till June and economic activity returns to normal by end-August, UBS fears the economy could contract 3.1% in FY21. Standard Chartered Bank on Monday slashed its growth forecast for India to a contraction of 2% in FY21 from a growth of 0.7% projected earlier.
The government is considering a stimulus package for small enterprises and other vulnerable sectors. Last month, it announced a relief package of ₹1.7 lakh crore for disadvantaged sections, women, farmers and senior citizens.