The services sector is still reeling under the pressure of local restrictions due to Covid-19, going by the Purchasing Managers’ Index (PMI) which came in at 45.4 in July, a private survey showed.

However, the reading is better than 41.2 of June even as it continues to be in contraction territory for the third month in a row. The worrying factor is further shedding of jobs in the services sector in July.

Slowdown in contraction rates

Performance of services in July is in sharp contrast to that of the manufacturing sector where PMI moved to expansion mode, with 55.3 mark in July.

Both the PMI data are released monthly by IHS Markit, in advance of comparable official economic data. Services has a share of 57 per cent in gross value added (GVA) while for manufacturing, it is over 14 per cent.

Commenting on Services PMI, Pollyanna De Lima, Economics Associate Director at IHS Markit, said that the current Covid-19 environment continued to weigh on the performance of the services sector that is so crucial to the Indian economy. “July data was somewhat disappointing, with incoming new business and output falling solidly over the month, but there was at least a slowdown in rates of contraction,” she said.

Hiring in India around 42% above pre-Covid levels: LinkedIn report

The agency mentioned that in line with sustained falls in new work, there was a further reduction in service sector jobs during July. Employment contracted for the eighth consecutive month, albeit at a moderate pace that was slower than that seen in June. Another factor weighing on jobs was an overall view that business activity will decline over the course of the coming 12 months. “Companies were pessimistic for the first time in a year. The downbeat assessment for output stemmed from concerns over the pandemic, margins and inflation,” it said.

Taking this forward, De Lima added that uncertainty over when the pandemic will end, as well as concerns about inflationary pressures and financial troubles, dampened business confidence in July.

Bringing the economy back on track

“The subdued performance of services more than offset a rebound across manufacturing, causing further contractions in private sector sales, output and employment. Rates of reduction eased noticeably from June, however,” she said.

Consumer services hit

Among the sub-sectors, consumer services was the worst-affected segment, going by the quicker declines in new orders and output out of the four categories (information & communication, finance & insurance, real estate and business services) for which contractions were recorded. Transport & Storage was the only sub-sector to register growth of business activity and sales.

Both PMIs are prepared by compiling responses from questionnaires sent to a panel of around 400 companies each from manufacturing and services sector. A diffusion index is calculated for each survey variable. The indices vary between 0 and 100, with a reading above 50 indicating an overall expansion compared to the previous month, and below 50 an overall contraction.