Services sector picks up in Aug, but still in red zone

The downturn in India's services sector activity eased significantly in August but remained in the contraction zone as Covid-19 pandemic-induced restrictions continued to adversely impact client demand and business operations, a monthly survey said on Thursday.

The seasonally adjusted India Services Business Activity Index rose sharply from 34.2 in July to 41.8 in August, the highest since March, before the escalation of the pandemic.

However, the Indian services sector activity contracted for the sixth successive month in August. A print above 50 means expansion and a score below that denotes contraction, as per the IHS Markit India Services Purchasing Managers' Index (PMI).

"August highlights another month of challenging operating conditions in the Indian 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," said Shreeya Patel, economist at IHS Markit.

New business and output continued to contract at marked rates, albeit slower than the records seen in April and May, the survey said, adding that restrictions also contributed to a record increase in outstanding business.

"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," Patel said.

On the employment front, reduced business activity saw the Indian service sector operating below capacity. As a result, firms reported job shedding for a sixth consecutive month.

On the price front, sustained revenue losses through the second quarter and increasing cost burdens led companies to raise charges for the first time since March.

Looking ahead, sentiment was neutral in August. Two-thirds of the panelists expected output in the year ahead to remain unchanged on current levels.

"That said, the survey showed signs of a potential recovery. Business sentiment was neutral after being negative in the previous three months and employment fell at the softest pace since March," Patel said.

Meanwhile, the Composite PMI Output Index, which measures combined services and manufacturing output, rose from 37.2 in July to 46 in August, and remained below the neutral 50 level, thereby signaling a fifth consecutive decline in private sector business activity.

Photograph: Shrikant Singh/ANI Photo.