PMI at 54.6: Lower footfall, COVID-19 restrictions, rising expenses dampen services activity in March

Despite outstanding business rising at services firms for the tenth month running, job shedding continued.

A softer rise in new business and output at Indian services firms due to the COVID-19 pandemic, consumer uncertainty and lower footfall, pulled down the rate of growth in services activity in March.

According to the monthly IHS Markit India Services Purchasing Managers’ Index (PMI) survey released on April 7, services PMI stood at 54.6 in March, down from 55.3 in February. In PMI parlance, a print above 50 means expansion, while a score below that denotes contraction.

A sharp increase in input costs, the second-fastest since February 2013 also meant businesses struggled even as selling prices rose only fractionally as the vast majority of companies left their fees unchanged due to competitive pressure.

However, companies that noted higher output linked the upturn to the elections, rising sales and improved demand. “Transport & Storage was the key source of strength during March. Consumer Services and Finance & Insurance remained in expansion mode, while contractions were evident in Information & Communication and Real Estate and Business Services,” said Pollyanna De Lima, principal economist at IHS Markit and author of the report.

New orders continued to rise in March, albeit at a slower pace. This stretched the current sequence of expansion to six months. On the other hand, external demand for Indian services continued to worsen, with new export orders decreasing for the thirteenth straight month.

Despite outstanding business rising at services firms for the tenth month running, job shedding continued.

However, the sector completed 6-straight months of growth in March. The services sector had taken a much worse pounding by the pandemic than manufacturing, given that most services require close contact with the customer. After plunging to historic lows in April of 2020, it has come back to the growth charts from October, 2020 onwards. But the continuing pandemic has made the prospect of steady growth volatile. PMI data shows no two successive months have seen growth since October.

The seasonally adjusted Nikkei India Composite PMI Output Index, which calculates growth after considering manufacturing and services indices relative to the size of GDP, fell to 56 in March, down from 57.3 in February, signalling a slowdown in private sector output growth.