Services PMI eased to 3-month low in April

India’s services sector showed some stress in April as Purchasing Managers’ Index (PMI) fell to 54 in April from 54.6 in March. This is three months low. Earlier manufacturing PMI rose a tad to 55.5 in April.

Services has maximum share in India’s Gross Domestic Product (GDP) with over 57 per cent contribution. Manufacturing has around 17 per cent share in GDP. Both the sectors are facing job loss.

According to IHS Markit, the agency responsible for preparing PMI based on a survey, the Indian service sector remained resilient to the escalation of the Covid-19 crisis, with a further solid increase in new work supporting output expansion. Still, panel member reports suggested that the rise in business activity was constrained by the pandemic and sentiment towards growth prospects faded.

Commenting on the latest survey, Pollyanna De Lima, Economics Associate Director at IHS Markit, said that the PMI results for April showed a more resilient economic performance for the service sector than expected given the escalation of the Covid-19 crisis in India. The rate of sales growth was surprisingly unchanged from March. A slightly different picture was seen for business activity. Although service providers signalled a strong expansion, the rate of growth eased to a three-month low. Firms foresee higher output volumes for the coming year, but the business sentiment was dampened by worries surrounding the pandemic.

This index is prepared by compiling responses from questionnaires sent to a panel of around 400 service sector companies. 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.

Meanwhile, the agency has listed some concerns for the services sector. “One area of concern was inflation. Services firms noted the steepest rise in overall expenses in over nine years as global shortages of inputs and higher transportation costs continued to exert upward pressure on outlays. Companies absorbed most of the additional cost burden themselves, as indicated by only a slight increase in selling prices. The gap between rates of inflation for input prices and charges was one of the widest since the global financial crisis,” De Lima said.

Talking about jobs, the survey noted there was a further decline in overall service sector employment. Payroll numbers fell for the fifth month in a row in April, albeit at a slight pace that was the weakest since January. However, the vast majority of panellists kept headcounts unchanged amid reports of sufficient capacity to cope with current workloads. There was another increase in outstanding business during April, but the overall accumulation rate was modest and the slowest in the current 11-month sequence of accumulation.

April data showed that travel restrictions and the Covid-19 crisis continued to curb international demand for Indian services. As a result, new export orders declined for the fourteenth month running and at the quicker pace than registered in March.

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