Services followed manufacturing in touching a historical low as the Purchasing Managers’ Index (PMI) for Services dipped to a mere 5.4 in April as against 49.3 in March. This is the largest contraction on a monthly basis since the collection of data began 14 years ago.
Based on PMI for manufacturing and services, the fear is that the Indian economy would have contracted by at least 15 per cent on an annualised basis.
Joe Hayes, Economist at IHS Markit, said that the Indian services economy posted its worst-ever month-on-month drop-in business activity in April. The extreme slide in the headline index, which fell by over 40 points, shows us that the strict lockdown measures have led to the sector essentially grinding to a complete standstill.
“The composite output index, which is a weighted average of manufacturing and services output, also signalled what is by far the worst contraction in economic activity since data collection began in late-2005. Historical comparisons with GDP data suggest that India’s economy contracted at an annual rate of 15 per cent in April,” he said.
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 that the economy has endured the worst and things will begin to improve as lockdown measures are gradually lifted, he added.
According to the covering report prepared by IHS Markit, restrictions on movement across India contributed to the steep drop in new orders during April. Some managers who participated in the survey mentioned that key clients closing their businesses had also severely hit workloads. International sales fell across the entire survey panel in April, as signalled by that index falling to zero. According to firms, measures to stem the spread of the virus overseas had caused demand to fall across all key export markets.
The historically marked decline in new orders led to a large rise in spare capacity at Indian service providers during the latest survey period. Although output fell sharply, panel comments indicated that several clients had cancelled pre-existing orders, leading to a reduction in backlogs of work. The rise in spare capacity was the strongest ever recorded in the survey history. As a result of lower business requirements, some services companies reduced employment at the start of the second quarter. The rate of job shedding was a survey record.