India's Service Sector PMI Shows Contraction For Third Straight Month In July

The country's service sector continued to be stuck in contraction during July month. As per the data released by IHS Markit, purchasing managers' index (PMI) for services for July month came in at 45.4 versus 41.2 in June. A figure below 50 suggests contraction in economic activity.

India's Service Sector PMI Shows Contraction For Third Straight Month In July

The reason for the continuing drag in service activity is largely owing to the coronavirus pandemic and local restrictions. "Business activity, new orders and employment declined further, but in all cases rates of contraction moderated from June. Looking ahead, firms were pessimistic about the 12-month outlook for output for the first time in a year. The latest data also pointed to an intensification of inflationary pressures across the sector", said the release.

New work intakes in services sector also fell for the third month running in July,though at a softer pace than in June. In addition to challenging conditions domestically, firms observed a further deterioration in international demand for services. New business from abroad decreased at a sharp pace and was little-changed from June.

Consumer services was the worst-affected segment, noting the quicker declines in new orders and output out of the four categories for which contractions were recorded. Transport and storage was the only sub-sector to register growth of business activity and sales.

In line with sustained falls in new work, there was a further reduction in service sector jobs during July. Employment contracted for the eighth consecutive month, though at a moderate pace that was slower than that seen in June.

Another factor weighing on jobs was an overall view that business activity will decline over the course of the coming 12 months. Companies were pessimistic for the first time in a year. The downbeat assessment for output stemmed from concerns over the pandemic, margins and inflation.

Commenting on the latest survey results, Pollyanna De Lima, Economics Associate Director at IHS Markit, said: "The current COVID-19 environment continued to weigh on the performance of the service sector that is so crucial to the Indian economy. July data was somewhat disappointing, with incoming new business and output falling solidly over the month, but there was at least a slowdown in rates of contraction. Uncertainty over when the pandemic will end, as well as concerns about inflationary pressures and financial troubles, dampened business confidence in July. Service providers were pessimistic towards the outlook for business activity for the first time in a year."

Meanwhile, manufacturing PMI data released on Monday posted the highest growth in three months time in July after moving into the contraction zone for the first time in June in almost a year.