Services sector activities slump to 11-month low in June

India's services sector activities contracted further in June as the intensification of the COVID-19 crisis and reintroduction of containment measures restricted demand, a monthly survey said on Monday.

The seasonally adjusted India Services Business Activity Index fell from 46.4 in May to 41.2 in June, as new work intakes and output contracted at the fastest rates since July 2020, which prompted companies to reduce employment again.

Subdued demand conditions resulted in a second successive monthly drop in new business received by services firms.

The pace of contraction was sharp and the quickest since July 2020, the survey said.

In Purchasing Managers' Index (PMI) parlance, a print above 50 means expansion, while a score below 50 denotes contraction.

"Given the current COVID-19 situation in India, it was expected that the service sector would take a hit.

“PMI data for June showed quicker declines in new business, output and employment that were sharp, but much softer than those recorded in the first lockdown," said Pollyanna De Lima, Economics associate director at IHS Markit.

According to Union health ministry data updated on Monday, India saw a single-day rise of 39,796 new COVID infections, which took the tally of cases to 3,05,85,229, while the death toll climbed to 4,02,728 with 723 more fatalities.

The international demand for Indian services deteriorated further in June, with new export orders falling for the 16th consecutive month.

Meanwhile, the overall level of business sentiment was down for the third month in a row in June, reaching its lowest mark since last August.

The COVID-19 pandemic was the main factor seen as a threat to the outlook among survey participants.

"Uncertainty about the path of the pandemic restricted business confidence among services firms, who were generally neutral in their forecasts for output in the year ahead.

“The overall level of sentiment slipped to a ten-month low," Lima said.

Lima further noted that "with India expanding its vaccine options and the government announcing ambitious plans to immunise the entire adult population by the end of the year, it is hoped that the pandemic can be brought under control and a sustainable economic recovery can begin".

Private sector companies in India noted a second successive monthly decline in business activity during June as market conditions remained challenging due to the escalation of the pandemic.

The Composite PMI Output Index, which measures combined services and manufacturing output, fell from 48.1 in May to 43.1 in June, signalling the sharpest rate of reduction since July 2020.

Meanwhile, rising prices of edible oils and protein-rich items pushed the retail inflation to a six-month high of 6.3 per cent in May, breaching the comfort level of the Reserve Bank and thus rendering a reduction in interest rates a difficult proposition in the near term.

Photograph: PTI Photo