March 2020: Services activity contracts

Activity in the country’s key services sector contracted in March and fell to a five-month low as the Covid-19 pandemic unleashed havoc on demand in overseas markets, and discretionary spending was knocked by public health measures aimed at stemming the outbreak, a survey showed.

The IHS Markit India Services Business Activity Index recorded 49.3 in March, down from February’s 85-month high of 57.5. The headline figure fell by over eight points, undoing the strong gains in growth momentum seen throughout 2019. Firms say they fear job losses, a sharp dip in profits and revenues and overall demand. Airlines, travel & tourism, hospitality and retail have borne the brunt.

“The impact of the global Covid-19 pandemic on India’s services economy has not been fully realised yet. March PMI data showed business activity falling mildly. Crucially however, the survey data collection (March 12-27) was concluding just as Prime Minister Modi ordered a complete lockdown of the country,” said Joe Hayes, economist at IHS Markit, “Strong growth momentum seen so far in 2019 was halted in March as demand conditions deteriorated, particularly overseas, leading to a reduction in business activity. Clearly the worse is yet to come as nationwide store closures and prohibition to leave the house will weigh heavily on the services economy, as has been seen elsewhere in the world. Pressure now fully lies on the government to combat the economic challenges the lockdown will cause,” said Hayes.

The survey data pointed to the first fall in order book volumes for Indian service providers since September 2019. Although the drop in demand was modest, it was the sharpest for just over two years. There were widespread reports of new business receipts struggling due to the Covid-19 outbreak, deterring discretionary spending.

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