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May services sector activity shrinks for 1st time in 8 months

NEW DELHI: Activity in the country’s crucial services sector plunged into contraction in May for the first time in eight months as the second wave of Covid-19 pandemic forced localised lockdowns which resulted in a decline in new business and output, a survey showed on Thursday.
At 46.4 in May, down from 54 in April, the India Services Business Activity Index was in contraction territory. The latest reading pointed to a solid rate of reduction that was nevertheless slower than those seen in the aftermath of the Covid-19 outbreak. According to panel members, the fall in output stemmed from the escalation of the pandemic and the reintroduction of restrictions, the survey showed. The survey is compiled from responses to questionnaires sent to a panel of around 400 service sector companies.
The services sector, particularly contact-intensive segments — such as hotels, restaurants, tourism, spas, salons and others — has been hit hard by the localised lockdowns across the country. Firms became increasingly worried about growth prospects, with positive sentiment slipping to a nine-month low. Jobs were shed to the greatest extent since last October.
“While PMI data released at the start of the month showed that the manufacturing industry managed to keep its head above water in May, the services sector struggled as the pandemic escalated. The intensification of the Covid-19 crisis and associated restrictions suppressed domestic and international demand for Indian services. Total sales decreased for the first time in eight months, while the fall in external orders was the most pronounced since last November,” said Pollyanna De Lima, economics associate director at IHS Markit.
The survey showed that growth of new work intakes ground to a halt in May, with companies noting the first decline in sales since September 2020. Survey participants indicated that demand was dampened by the intensification of the Covid-19 crisis. International demand for Indian services also worsened.

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