India’s services sector slump eased in Sept, but job losses balloon
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India’s services sector slump eased in Sept, but job losses balloon

By Reuters

  • 06 Oct 2020
India’s services sector slump eased in Sept, but job losses balloon
Credit: Reuters

The plunge in India's services sector activity eased considerably in September after the government lifted some coronavirus restrictions, but demand continued to contract, prompting firms to cut more jobs, a private business survey showed on Tuesday.

Signs of stabilisation in services are likely to provide more comfort to policymakers after a sister survey on Thursday showed India's manufacturing expanded at its fastest pace in over eight years, suggesting business conditions were gradually returning to normal in Asia's third-largest economy.

The Nikkei/IHS Markit Services Purchasing Managers' Index bounced to 49.8 in September from August's 41.8, a touch below the 50 mark that separates expansion from contraction on a monthly basis.

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But September was the seventh straight month that activity had contracted, the longest such stretch since a 10-month run to early 2014.

"The relaxation of lockdown rules in India helped the service sector move towards a recovery in September. Participants of the PMI survey signalled broadly stable business activity and a much softer decline in new work intakes," Pollyanna De Lima, economics associate director at IHS Markit, said in a release.

But the root cause of chronic business disruption shows no sign of abating as the coronavirus death toll in the world's second-most populous country rose past 100,000, only the third country in the world to reach that bleak milestone, after the United States and Brazil.

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The services sector accounts for around 55% of India's economy and nearly a third of its jobs.

Even if restrictions are eased further, the economy is unlikely to return to pre-COVID-19 levels in the coming year as people remain cautious about discretionary spending and millions more are pushed into poverty.

Although improved from August, sub-indexes tracking domestic and foreign demand remained firmly in contraction territory, leading firms to reduce their workforce for the seventh straight month, the longest streak on record.

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Weak demand also forced firms to absorb much of a jump in input costs, which increased at the quickest pace since February.

After giving a neutral outlook in August, services firms were optimistic for the first time since April about the year ahead, largely on hopes that a vaccine for COVID-19 would be rolled out.

However, the World Health Organization does not expect widespread COVID-19 vaccinations until mid-2021 and it would likely take years to vaccinate India's 1.3 billion people.

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A composite index, which measures both services and factory activity, returned to growth for the first time in six months, rising to 54.6 last month from August's 46.0.

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