Services PMI at 33.7 in June, mired in deep downturn

Services sector in India is still waiting for more activities, post unlocking, as the Purchasing Managers’ Index (PMI) for services touched 33.7 in June. No doubt, it is much better than 12.6 of May, but remained below the neutral 50 mark for a fourth successive month, signalling another decline in service sector output.

Performance of service sector is critical to gauge the economic situation as it has a share of nearly 57 per cent in Gross Domestic Products (GDP), which is maximum among all three sectors — services, industry and agriculture.

India Services PMI is compiled by economic research agency IHS Markit from responses to questionnaires sent to a panel of around 400 service sector companies. The sectors covered include consumer (excluding retail), transport, information, communication, finance, insurance, real estate and business services. Survey responses are collected in the second half of each month and indicate the direction of change compared to the previous month. A diffusion index is calculated for each survey variable. The indices vary between 0 and 100, with a reading above 50, indicating an overall increase compared to the previous month, and below 50 an overall decrease.

No at all promising

Commenting on the latest survey results, Joe Hayes, Economist at IHS Markit, said India’s service sector continued to struggle in June as the country’s coronavirus crisis worsened. Simply put, the country is gripped in an unprecedented economic downturn which is certainly going to spill over into the second half of this year unless the infection rate can be brought under control.

“Some companies have seen activity stabilise, but this most likely just reflects closures and temporary suspensions. While this will have contributed to a rise in the PMI figures, it is certainly not a promising sign,” he said. Further, he mentioned that a large fraction of the survey panel is still reporting falling activity and order book volumes, reflecting an intensely challenging domestic picture in India.

The report, comprising of the survey result, said the Indian service sector remained under intense strain during June, as activity fell at another substantial month-on-month rate, amid the ongoing economic disruption caused by the Covid-19 pandemic. Although the deterioration was weaker than in April and May, owing to a stabilisation in output levels at some firms, the latest reduction was stronger than seen prior to the virus outbreak by a wide margin.

Stabilisation in activity

The slower rate of decline reflects some stabilisation in activity levels, with around 59 per cent of firms reporting no change in output since May. Meanwhile, only 4 per cent registered growth, while 37 per cent recorded a reduction.

Employment across the Indian services sector fell during June. Job losses were attributed to lower business requirements, although some companies reported poor staff availability. Consequently, there were signs of capacity pressures building in June as outstanding contracts rose, despite overall activity continuing to fall sharply.

According to the report, as conditions continued to deteriorate in June, surveyed companies became more pessimistic about their prospects over the coming 12 months. Business confidence slid to a survey low and pointed to strongly negative expectations towards activity levels in the year ahead. The heightened risk of a protracted recession was noted by the firms.