The rate of contraction of India’s services sector activity improved in August, with the easing of covid-19 induced lockdown restrictions across the country. However, the pace of contraction slowed.

Data released by the data analytics firm IHS Markit showed purchasing managers’ index (PMI) for services rose sharply from 34.2 in July to 41.8 in August, the highest since March, before the escalation of the global pandemic. A figure of above 50 indicates expansion, while a sub-50 print signals contraction. Services sector makes up more than half of India’s gross domestic product (GDP).

“New business placed at Indian service providers fell for the sixth month running in August amid weak market demand. That said, the rate of decline was the slowest in five months,” an official statement said.

India’s purchasing managers’ index (PMI) for manufacturing expanded for the first time in five months August to 52 from 46 in July, signalling a turnaround in industrial activity due to the easing of lockdown curbs from June.

“August highlights another month of challenging operating conditions in the Indian services sector. Sustained periods of closure and ongoing lockdown restrictions in both domestic and foreign markets have weighed heavily on the health of the industry. Output and new work continue to fall at solid rates, while restrictions meant that firms were often unable to complete projects. Backlogs of work accumulated to the greatest extent in almost 15 years of data collection,” Shreeya Patel, Economist at IHS Markit said.

“That said, the survey showed signs of a potential recovery. Business sentiment was neutral after being negative in the previous three months and employment fell at the softest pace since March. Additionally, there were efforts to protect profit margins, firms raised their selling prices to pass on higher expenses to customers and recover lost revenues after a period of closure” Patel said.

The report further said that while some firms hoped for the passing of covid-19, others noted market uncertainty. Extended lockdown across various states and activities is likely to weigh on future activity, it said.

Since June, the union government has been gradually allowing restarting of economic activity. Despite a surge in the number of covid-19 cases, the government on Saturday allowed social, cultural, religious and political congregations with a cap from 21 September, under the Unlock 4.0 guidelines. It also allowed restarting of metro rail services.

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