Indian service sector stuck in contraction territory for third straight month in July: PMI

By: |
August 04, 2021 11:48 AM

The seasonally adjusted India Services Business Activity Index rose from 41.2 in June to 45.4 in July, but was stuck in the red due to subdued demand conditions amid the COVID-19 crisis.

PMIThe Composite PMI Output Index, which measures combined services and manufacturing output, rose from 43.1 in June to 49.2 in July, but remained in the contraction territory.

India’s services sector remained in contraction territory for the third straight month in July, as business activity, new orders and employment declined further largely due to the COVID-19 pandemic and local restrictions, a monthly survey said on Wednesday. The seasonally adjusted India Services Business Activity Index rose from 41.2 in June to 45.4 in July, but was stuck in the red due to subdued demand conditions amid the COVID-19 crisis.

In Purchasing Managers’ Index (PMI) parlance, a print above 50 means expansion, while a score below 50 denotes contraction. “The current COVID-19 environment continued to weigh on the performance of the service 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,” Pollyanna De Lima, Economics Associate Director at IHS Markit, said.

Looking ahead, firms were pessimistic about the 12-month outlook for output for the first time in a year. “Uncertainty over when the pandemic will end, as well as concerns about inflationary pressures and financial troubles, dampened business confidence in July. Service providers were pessimistic towards the outlook for business activity for the first time in a year,” Lima said.

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,” the survey noted. Meanwhile, the July data pointed to a third consecutive monthly decline in Indian private sector activity. The Composite PMI Output Index, which measures combined services and manufacturing output, rose from 43.1 in June to 49.2 in July, but remained in the contraction territory.

On the inflation front, the latest data also pointed to an intensification of inflationary pressures across the sector. Survey participants reported higher prices paid for a wide range of items such as fuel, medical equipment and raw materials. The overall rate of inflation quickened from June and outpaced its long-run average. Output charges also rose at quicker pace in July.

Experts believe, amid fears of a third wave of coronavirus pandemic and hardening of retail inflation, the Reserve Bank is likely to maintain status quo on interest rate and watch the developing macroeconomic situation for some more time before taking any decisive action on monetary policy. The RBI is scheduled to announce its bi-monthly monetary policy review on August 6 at the end of the three-day meeting — August 4-6 — of its Monetary Policy Committee (MPC).

Do you know What is India expected to grow 10 pc during current fiscal: NCAER Director General Poonam Gupt,FinMin releases Rs 9,871 cr grant to 17 state, Cash Reserve Ratio (CRR), Finance Bill, Fiscal Policy in India? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1COVID-19 pandemic hit country’s economy hard: President Ram Nath Kovind
2Higher investment required in agri R&D: India says at G20 agri meet
3Opposition-ruled states demand extension of GST compensation regime beyond June 2022