Service sector loses momentum in June, shows index

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SME Times News Bureau | 03 Jul, 2020
De-growth of India's service sector decelerated in June, a macro-economic survey report showed on Friday.

Consequently, the de-growth rate of India's overall business activity which includes the output of both services and manufacturing sectors also slowed.

In terms of index reading, the IHS Markit India Services Business Activity Index recorded 33.7 in June from May's unprecedented low of 12.6, but remained below the neutral 50 mark for a fourth successive month, signalling another decline in service sector output.

"Although the downturn lost further momentum in June, it remained excessively strong as the Covid-19 pandemic curtailed intakes of new work and disrupted business operations," the survey report said.

"The slower rate of decline was reflective of some stabilisation in activity levels, with around 59 per cent of firms reporting no change in output since May. Meanwhile, only 4 per cent registered growth, while 37 per cent recorded a reduction."

Accordingly, the Composite PMI Output Index, which measures combined services and manufacturing output, rose to 37.8 in June, up from 14.8 in May but was still below the crucial 50 level which separates growth from contraction.

"Overall, the latest data signalled a further steep, albeit considerably slower rate of decline in private sector activity. Both manufacturing and service sector output fell when compared to May, although rates of decline differed vastly," the report said.

"While manufacturing production fell moderately, edging closer to stabilisation, services activity continued to decrease substantially."

Besides, the report pointed out that demand conditions facing both sectors remained subdued in June, although, as was the case with output, the service sector observed the stronger reduction in orders.

Resultantly, there was a broad-based decline in employment.

Commenting on the latest survey results, Joe Hayes, Economist at IHS Markit, said: "India's service sector continued to struggle in June as the country's coronavirus crisis worsened. Simply put, the country is gripped in an unprecedented economic downturn which is certainly going to spill over into the second half of this year unless the infection rate can be brought under control."

"Some companies have seen activity stabilise, but this is most likely just reflecting closures and temporary suspensions. While this will have contributed to a rise in the PMI figures, this certainly isn't a promising sign. A large fraction of the survey panel are still reporting falling activity and order book volumes, reflecting an intensely challenging domestic picture in India."