Covid blow results in steep fall in April services activity

New Delhi: India’s services sector collapsed in April after the lockdown imposed to combat the coronavirus outbreak brought activity to a complete halt, leading to a historic spike in layoffs and reinforcing fears of a deep recession, a private survey showed on Wednesday.
The IHS Markit India Services Business Activity Index plunged to 5.4 in April from 49.3 in March, an unprecedented contraction since the survey started over 14 years ago.

“The Indian services economy posted its worst ever month-on-month drop in business activity during 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,” said Joe Hayes, an economist at IHS Markit.



Highlighting that the economic damage of the pandemic has so far been “deep and far-reaching” in India, Hayes said: “Historical comparisons with GDP data suggest that India’s economy contracted at an annual rate of 15% in April.” However, Hayes said the hope is that the economy has endured the worst and things will begin to improve as lockdown measures are gradually lifted.

The Purchasing Managers’ Index (PMI) survey, also known as Services PMI, was based responses from about 400 service sector companies collected from April 7 to 28. India’s nationwide lockdown, which started on March 25 to combat the Covid-19 threat, was first extended to May 3 and again to May 17.

“The discretionary portion of the service sector would have witnessed a plunge in activity in line with what the PMI services has indicated for the month of April,” said Aditi Nayar, principal economist at ICRA.

However, Nayar said other parts of the service sector such as banks, financial intermediaries and government services would not have seen such a drastic collapse in activity. Citing travel restrictions and falling demand due to business closures as the key reasons for the drastic reduction in activity, Rahul Bajoria, chief India economist at Barclays, said the contraction in India’s Services PMI is sharper than those of Asian peers.

China’s service sector activity expanded at a faster pace in April while Japan’s was in double digits. While the rate of jobs shed was a survey record, about 90% of the survey respondents reported unchanged workforce numbers.

Further, expectations for future output slumped for the second successive month to their weakest level since December 2015. As per the survey report, the index measuring foreign demand for services ceased to an unprecedented zero, while an overall demand index also fell to a record low.