India Services PMI Continues To Contract In May

A gauge of India's services sector pointed to a contracting in activity for the second straight month even as the gradual unwinding of lockdown restrictions helped push up activity from a ‘historic low' in April.

The India Services Business Activity Index stood at 12.6 in May against 5.4 in April, according to a media statement by IHS Markit. A reading below 50 indicates contraction in business activity.

“Although the headline figure rose from April's unprecedented low of 5.4, it remained at a level which, prior to the coronavirus pandemic, was unparalleled in over 14 years of data collection and pointed to an extreme drop in services activity across India,” the release said. The composite PMI stood at 14.8 in May compared with 7.2 in April.

The India Manufacturing PMI stood at 30.8 in May compared with 27.4 in April on a seasonally-adjusted basis.

The survey measures expectations of future business prospects and doesn't capture ongoing activity in large services sectors such as financial services, telecommunications and healthcare.

According to panel member reports, services activity sank sharply due to extended business shutdowns and very weak demand conditions, the statement said. The latest survey data pointed to a substantial decline in new work intakes at Indian service providers in May. Foreign demand, too, continued to remain a drag. The companies surveyed reported a 95% fall in foreign demand compared to April.

Despite some easing in restrictions in May, a number of firms reported a build-up in unfinished work due to idle operations. But overall backlogs of work declined.

Employment at services sector companies was reduced further during the latest survey period. The rate of job shedding remained strong by historical comparisons, despite easing since April.

Business sentiments for the services industry over the coming 12 months slumped to the most negative since the survey's inception in December 2005 amid forecast of prolonged economic weakness, domestically and overseas.

Prices data showed deflationary trends across input costs and output charges midway through the second quarter. While the rate at which output prices fell eased, operating expenses dropped at the fastest pace in the survey's history.

Better But Not By Much

India's PMI readings were among the lowest in April as the country enforced a far strictest lockdowns than most other countries.

Despite some easing in restrictions for economic activity in May, India's PMI is likely to once again feature among the lowest worldwide. Even manufacturing PMI, which saw a smaller hit in comparison to services, at 30.8, remained lower than a number of other economies for which data is so far available.