India Services PMI Shows ‘Extreme Decline’ In April

A cyclist travels in the Churchgate area during a lockdown imposed due to the coronavirus in Mumbai, India, on Sunday, April 5, 2020. The World Bank has offered $1 billion in emergency financing to help India increase its screening, contact tracing, and laboratory diagnostics to fight the coronavirus outbreak. Photographer: Dhiraj Singh/Bloomberg

The nationwide lockdown, which continued through the month of April, brought India's services sector to a near standstill, showed data released by IHS Markit on Wednesday.

The India Services Business Activity Index fell to 5.4 in April, an “extreme decline” from 49.3 in March, IHS Markit said. A reading of less than 50 indicates contraction in business activity.

The reading is “indicative of the most severe contraction in services output since records began in December 2005,” the release said. According to respondents to the survey, activity fell severely as a result of the nationwide lockdown, leading businesses to shut down their operations as demand collapsed.

Approximately 97 percent of survey respondents observed a reduction in output, highlighting the widespread impact of the Covid-19 pandemic, IHS Markit said.

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. Historical comparisons with GDP data suggest that India's economy contracted at an annual rate of 15 percent in April.

Joe Hayes, Economist, IHS Markit

The manufacturing PMI index, data for which was published on Monday, fell to 27.4 in April from 51.8 in March. Consequently, composite PMI, a weighted average of both indices, fell to 7.2 in April from 50.6 in March.

Across the services sector, survey respondents said that both local and international demand fell. International sales came to a halt as reflected in the index falling to 0.0.

Further, respondents reported that a number of clients had cancelled pre-existing orders, leading to a reduction in backlogs of work. The rise in spare capacity was the strongest ever recorded in the survey history.

As a result of lower business requirements, some services companies reduced employment at the start of the second quarter. While the rate of job shedding was a survey record, approximately 90 percent of respondents reported unchanged workforce numbers.

Looking ahead, latest survey data signaled a further erosion of business confidence in April. Expectations towards future output slumped for a second successive month to their weakest since December 2015. According to panel comments, expectations of a protracted decline in the economy weighed on sentiment.

Joe Hayes, Economist, IHS Markit

India Hit Hard

The pandemic has taken a toll on economies across the globe. But the pace of decline in India's composite PMI is steeper than others due to the 40-day nationwide lockdown announced on March 24. Restrictions have been partially eased starting May 4.

Major economies, such as the U.S. and U.K., have all seen historic declines in the level of composite PMI. Manufacturing activity across emerging economies such as China, Brazil and South Africa has also plunged. Services PMI data for these countries is yet to be released.

Globally, while manufacturing may see a partial rebound as factories reopen, the services economy, including sectors like travel and hospitality, are expected to see a slower revival.