Services activity declines in April

aIndia’s services activity slowed down to a three-month low in April with a surging second wave of Covid-19 and localised lockdowns across the country forcing services businesses to reduce operations.

Data released by analytics firm IHS Markit showed that the Purchasing Managers’ Index (PMI) for the services sector declined to 54 in April from 54.6 in the preceding month. A figure above 50 indicates expansion, while sub-50 signals contraction.

“Indian services firms were optimistic regarding the 12-month outlook for business activity, but the overall level of positive sentiment fell to the lowest since last October. The escalation of the pandemic was the main drag on confidence,” the data analytics firm said.

The manufacturing PMI in April improved slightly to 55.5 as new export orders rose at the fastest pace since October, cancelling out the impact of new domestic factory orders and output falling to eight-month lows, data released on Monday showed.

Disaggregated services sector data indicated that business activity and sales expanded in three of the five broad areas of the service economy, the exceptions being information and communication, and real estate and business services. Transport and storage was the brightest spot in April.

April data showed that travel restrictions and the Covid-19 crisis continued to curb international demand for Indian services. New export orders declined for the 14th month in a row and at a quicker pace than in March.

On the jobs front, there was a further decline in overall service sector employment. Payroll numbers fell for the fifth month in a row in April, albeit at a pace that was the weakest since January. The vast majority of panellists kept headcounts unchanged amid reports of sufficient capacity to cope with workloads.

Companies reported a sharp rise in expenses in April, which they linked to higher prices for food, freight, fuel and a wide range of other items. The overall rate of input cost inflation was the most in close to nine-and-a-half years.

Firms foresee higher output volumes over the coming year, but business sentiment was dampened by worries surrounding the pandemic, according to Pollyanna De Lima, economics associate director at IHS Markit.

“One area of concern was inflation. Services firms noted the steepest rise in overall expenses in over nine years as global shortages of inputs and higher transportation costs continued to exert upward pressure on outlays,” she said.

“Firms absorbed most of the additional cost burden, as indicated by only a slight increase in selling prices. The gap between rates of inflation for input prices and charges was one of the widest since the global financial crisis,” she added.