March 2021: Covid Resurgence Slows Services Activity

The pace of expansion of services activity in India slowed in March, curbed by the second wave of the Covid-19 pandemic and low footfalls, leading to job shedding for the fourth straight month.

The India Services Business Activity Index fell to 54.6 in March from 12-month high of 55.3 in February but stayed above the 50-mark on the index that separates expansion from contraction.

Companies that noted higher output linked the upturn to the series of state elections, rising sales and improved demand, while some firms mentioned low footfall, consumer uncertainty and the Covid-19 crisis led to a reduction in activity at their units and restricted the upturn. The consecutive six-month upturn was associated with the elections, higher demand and successful marketing.

“The escalation of the pandemic and the reinstatement of restrictions could cause a notable slowdown in growth during April,” said Pollyanna De Lima, economics associate director at IHS Markit, adding that service providers hope for an improvement in vaccine availability.

External demand for Indian services continued to worsen, with new orders from abroad decreasing for the thirteenth straight month, according to the survey.

Services companies reported higher expenses in March. The rate of input cost inflation was sharp and outpaced its long-run average, despite slowing from February’s eight-year high and participants reported a sharp increase in input costs, the second-fastest since February 2013.

Looking ahead, companies expect business activity to increase over the course of the next 12 months based on rising client enquiries and hopes for greater vaccine availability. The overall level of confidence was unchanged from February.

“In our view, vaccination progress remains critical for India to manage the growth impact of the latest surge in Covid-19 cases,” said Rahul Bajoria, chief India economist, Barclays, adding that the impact of the localised lockdowns might be felt in the April print.

As per the survey, sub-sector data pointed to growth of output and sales in Consumer Services, Finance & Insurance and Transport & Storage. Information & Communication and Real Estate & Business Services dropped in the rankings, posting declines in new work and business activity.

A sister survey on Monday showed manufacturing activity in India growing at its slowest pace in seven months, restricted by the second wave of the Covid-19 pandemic.

Put together, growth of Indian private sector output eased in March and the Composite PMI Output Index was at 56, down from 57.3 in February, signalling expansion for the seventh month running. Aggregate employment decreased further, marking a 13-month sequence of job shedding.

Though softer increases were recorded in the manufacturing and service sectors, new business received by private sector companies rose for the seventh consecutive month.

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