Aircraft parked at the Rajiv Gandhi International Airport in Hyderabad during the nationwide lockdown imposed to contain the spread of coronavirus (COVID-19), on April 9, 2020.
Aircraft parked at the Rajiv Gandhi International Airport in Hyderabad during the nationwide lockdown imposed to contain the spread of coronavirus (COVID-19), on April 9, 2020. |IANS
Business & Economy

India Services PMI plummets to 5.4 in April as lockdown pushes output, demand down

NetIndian News Network

New Delhi, May 6, 2020

The IHS Markit India Services Business Activity Index posted 5.4 in April 2020, an extreme decline from 49.3 in March, pointing to the most severe contraction in services output since records began in December 2005.

Measures to stem the spread of the coronavirus disease 2019 (COVID-19), such as restrictions on the movement of citizens and business shutdowns, were the key factors causing output and demand to fall at unprecedented rates, a press release from IHS Markit said.

The impact of the global pandemic was particularly striking in export markets, with the entire survey panel registering lower overseas sales.

A reading above 50 indicates an overall increase compared to the previous month, and below 50 an overall decrease.

According to panellists, activity fell severely as a result of the nationwide lockdown, leading businesses to shut down their operations as demand collapsed. Approximately 97% of survey respondents observed a reduction in output, highlighting the widespread impact of the COVID-19 pandemic.

Restrictions on movement across India contributed to the steep drop in new orders during April. Demand for services fell at the sharpest rate in over 14 years of data collection. Some panel members mentioned that key clients closing their businesses had also severely hit workloads, the release said.

International sales fell across the entire survey panel in April, as signalled by the respective index falling to 0.0. According to firms, measures to stem the spread of the virus overseas had caused demand to fall across all key export markets.

The release said the historically marked decline in new orders led to a large rise in spare capacity at Indian service providers during the latest survey period. Although output fell sharply, panel comments indicated that a number of clients had cancelled pre-existing orders, leading to a reduction in backlogs of work. The rise in spare capacity was the strongest ever recorded in the survey history.

As a result of lower business requirements, some services companies reduced employment at the start of the second quarter. While the rate of job shedding was a survey record, approximately 90% of respondents reported unchanged workforce numbers.

Looking ahead, latest survey data signalled a further erosion of business confidence in April. Expectations towards future output slumped for a second successive month to their weakest since December 2015. According to panel comments, expectations of a protracted decline in the economy weighed on sentiment.

Elsewhere, prices data showed similar trends at the start of the second quarter. Indian service providers recorded a sharp drop in operating costs which was the strongest since data collection began in December 2005. The drop in expenses were a result of the lockdown, as firms observed lower running costs due to either partial or complete shutdowns. Consequently, firms were able to reduce their fees in an effort to stimulate sales. The rate of deflation was a new survey record.

The release said the Composite PMI Output Index, which measures combined services and manufacturing output, sank to a new record low in April. At 7.2, the index fell from 50.6 in March and was indicative of an unprecedented decline in private sector business activity. The latest reading was the smallest by some margin, eclipsing the previous low seen in February 2009.

The downturn was severe across both sectors in April, although the contraction in services output was slightly stronger. Demand for goods and services collapsed during the latest survey period, with the respective Composite New Orders Index falling by over 40 points. Both sectors reduced staffing numbers during April in response to lower business requirements.

Meanwhile, input and output prices fell when compared to March, although respective rates of deflation were stronger at manufacturers than service providers.

Commenting on the latest survey results, Joe Hayes, Economist at IHS Markit, said: "The Indian services economy posted its worst ever month-on-month drop in business activity during April. The extreme slide in the headline index, which fell by over 40 points, shows us that the strict lockdown measures have led to the sector essentially grinding to a complete standstill.

"The composite output index, which is a weighted average of manufacturing and services output, also signalled what is by far the worst contraction in economic activity since data collection began in late-2005. Historical comparisons with GDP data suggest that India's economy contracted at an annual rate of 15% in April. 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."