India's services activity shrank in May due to lockdowns, job cuts quicken

Activity in India`s dominant services industry contracted in May for the first time in eight months as strict lockdowns to curb the second wave of COVID-19 dampened demand, prompting firms to cut jobs at the fastest pace since October, a private survey showed.

Despite a recent slowdown in reported infections, the South Asian nation is still recording well over 100,000 cases and over 3,000 deaths per day, forcing most provinces to keep tight restrictions on business activity in place.

The Nikkei/IHS Markit Services Purchasing Managers` Index fell to a nine-month low of 46.4 in May from 54.0 in April, sliding below the 50-level that separates growth from contraction for the first time in eight months.

Since August, overall demand contracted at the sharpest rate, with foreign demand shrinking at the fastest pace since November.

"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 service sector struggled as the pandemic escalated," noted Pollyanna De Lima, economics associate director at IHS Markit.

"The intensification of the COVID-19 crisis and associated restrictions suppressed domestic and international demand for Indian services."

Although Asia's third-largest economy grew at an annual pace of 1.6% during the first three months of 2021, economists are pessimistic about this quarter's growth prospects just before the devastating second wave of COVID-19 hit.

Services firms intensified their job cutting spree last month, laying off workers at the fastest pace since October, bad news for a labour market that has already seen millions thrown out of work in the past year.

A decline in business expectations to its lowest in nine months may lead firms to reduce payrolls further in the coming months.

Input costs continued to surge, but firms were only able to pass some of the increase to customers due to weakening demand.

Despite an expansion in manufacturing activity, albeit at the slowest pace in 10 months, the contraction in services activity led an overall composite index to decline to a nine-month low of 48.1 in May, from 55.4 in April.