Pandemic Slows India's Services Activity In March 2021: Report

Input cost index was second-highest since February 2013, only surpassed in previous month.

Activity in India’s dominant services industry expanded for the sixth consecutive month in March, supported by strong domestic demand, but some momentum was lost as authorities imposed fresh restrictions following a surge in coronavirus cases, a survey showed. The results were broadly backed by a Reuters poll last week that predicted India’s economy would grow faster than previously expected this fiscal year but warned a resurgence of coronavirus cases could derail growth

The Nikkei/IHS Markit Services Purchasing Managers’ Index fell to 54.6 in March from 55.3 in February but held above the 50-mark separating growth from contraction.” While the March results showed that service sector growth in India softened, rates of expansion for output and new business remained strong relative to the survey trend,” noted Pollyanna De Lima, economics associate director at IHS Markit.”The elections supported the uptick in demand, but the COVID-19 pandemic and reduced footfall restricted the upturn.”A sub-index tracking new business was above 50 for the sixth consecutive month but eased slightly from February.

Subdued foreign demand for services meant export business declined again, although the fall was the shallowest since February last year – not long before the full impact of the pandemic hit. This led to a reduction in headcount for the fourth month, indicating the labour market was still struggling even though the pace of contraction was marginal.

Despite the current challenges around COVID-19 infections, business expectations for the year-ahead remained high as increasing numbers of vaccines are administered.”Service providers hope for an improvement in vaccine availability, which would curb the spread of the disease and support the economy,” De Lima added. Firms continued to bear elevated cost pressures but only passed some of it to consumers to stay competitive.

An input cost index was the second-highest since February 2013, only surpassed in the previous month. But the Reserve Bank of India is not expected to raise interest rates this fiscal year despite high inflation as policymakers prioritise supporting growth for now amid the pressures caused by the pandemic. The fall in both the headline services and manufacturing PMIs depressed the composite PMI from February’s four-month high of 57.3 to 56.0.

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