World’s Worst PMI Signals 15% Contraction in India’s Economy

(Bloomberg) -- India's dominant services industries crashed last month, signaling a massive contraction in the economy during the strict stay-at-home restrictions.

The services purchasing managers index plunged by 43.9 points to 5.4 in April, the lowest in the world, hitting single digits for the first time and staying below 50, the dividing line between contraction and expansion, according to data published Wednesday by IHS Markit. The services sector makes up more than half of India's gross domestic product.

With manufacturing activity also sharply down, the composite index plummeted to 7.2 from 50.6 in March, IHS Markit said. Historical comparisons of the index with GDP suggest the economy contracted at an annual rate of 15% in April, it said.

The PMI figures provide the first real glimpse of the devastating hit to the economy from the coronavirus pandemic and the nationwide shutdown that came into effect in the last week of March. Large swathes of the population have been left destitute, with an estimated 122 million people losing their jobs in April, many of them daily wage earners, a separate private survey showed Tuesday.

“Growth in India is clearly under siege,” ANZ Banking Group economists Rini Sen and Sanjay Mathur wrote in a note to clients on Wednesday. “We expect the services sector to struggle as more people socially contain themselves even after the lockdown has been fully lifted.”

PMI surveys across the world are showing deep contractions in manufacturing and services. The U.K.'s services PMI plummeted to its lowest since the survey began in 1996, while survey results for several Asian countries earlier this week showed record plunges in factory output.

“It is clear that the economic damage of the Covid-19 pandemic has so far been deep and far-reaching in India, but the hope is that the economy has endured the worst and things will begin to improve as lockdown measures are gradually lifted,” Joe Hayes, an economist at IHS Markit, wrote in the release.

Other high-frequency data in India, such as zero car sales, suggest Asia's third-largest economy is on course for a sharp contraction this year. Bloomberg Economics' Abhishek Gupta expects GDP to shrink by nearly 25% in the April-June quarter from a year ago, and 4.5% for the fiscal year through March 2021. Standard Chartered Plc is projecting a 2% contraction for the year.

While the government began easing restrictions in some areas this week, several of the most industrialized states, including Maharashtra and Gujarat, are still grappling with rising virus infections. India's top 10 Covid-19 affected states contribute 66% to the country's GDP, Kaushik Das, Deutsche Bank AG's chief India economist, wrote in a report last week.

Prime Minister Narendra Modi is facing a severe fiscal crunch, limiting his government's ability to deliver meaningful stimulus to the economy. The virus relief package so far has amounted to about 0.8% of GDP, leaving the Reserve Bank of India to do the heavy lifting in supporting growth through interest rate cuts and injecting more than $50 billion into the banking system.