India’s services fall in historic slump, threaten deep recession

India’s economy could shrink by 15 percent due to a plunge in manufacturing and services output, survey shows.

Migrant workers in India
India's economy was affected not just by a nationwide lockdown, preventing employees from going to work, but also by a decline in global demand during the coronavirus pandemic [File: Amit Dave/Reuters]

Activity in India’s services sector crashed at a record-breaking rate in April, raising fears of a double-digit slump in its economy as the country grapples with a widespread lockdown to curb the spread of the coronavirus.

The country’s purchasing managers’ index (PMI) for services plunged to just 5.4 points in April, down from 43.9 points from March’s reading and its lowest reading in more than 14 years since the survey began, according to data released by IHS Markit on Wednesday.

The latest reading indicates a plunge in activity as it remains firmly below 50, which separates expansion from contraction.

“Historical comparisons with GDP (gross domestic product) data suggest that India’s economy contracted at an annual rate of 15 percent in April,” said IHS Markit economist Joe Hayes in a statement shared with Al Jazeera.

Measures to stem the spread of the coronavirus, including movement restrictions and business shutdowns, were the key factors causing output and demand to fall at unprecedented rates, the economics research firm said.

“Approximately 97 percent of survey respondents observed a reduction in output, highlighting the widespread impact of the COVID-19 pandemic,” IHS Markit said.

The decline in the services sector follows bleak manufacturing activity, which also shrank to a record low according to the PMI data compiled by IHS Markit.

India’s Nikkei manufacturing PMI declined to 27.4 in April compared with March’s 51.8 as the sector saw record contractions in output, new orders and employment.

Combined, the PMI for services and manufacturing output shrank to 7.2 in April compared with 50.6 in March, eclipsing a previous low of about 40 points in February 2009.

The fall in global demand also affected India’s sales of services, as countries closed their economies in response to the pandemic. The index for India’s international sales fell to zero as all respondents recorded declines.

This was despite businesses lowering their fees to stimulate sales as operating costs declined due to the shutdowns, IHS Markit noted.

Clients also cancelled pre-existing orders, leading to fewer backlogs and a surge in spare capacity, Indian businesses said. As such, firms slashed jobs at a record rate, although 90 percent of respondents reported unchanged numbers of staff.

After 40 days of a nationwide lockdown, India announced that it would extend the restrictions on movement for another two weeks, rattling many labour-dependent firms and industries.

However, the government also began easing restrictions and allowing some firms to resume operations in areas that were relatively untouched by the coronavirus disease.

“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,” Hayes said.

Source: Al Jazeera