India’s services sector loses more steam in December, job cuts resume

Growth in India’s dominant services industry continued to lose momentum in December as a resurgence in coronavirus infections weighed on new business and employment, a private survey showed on Wednesday.

Asia’s third-largest economy has been gradually recovering from a coronavirus-induced recession but is not expected to return to pre-pandemic levels soon, especially within the service industry - the engine of economic growth and jobs in the country.

The Nikkei/IHS Markit Services Purchasing Managers’ Index fell to 52.3 in December from November’s 53.7 but held above the 50-mark separating growth from contraction for a third straight month.

“A spike in Covid-19 cases was reported as a key factor restricting growth of new work intakes among service providers, which in turn curbed the rise in output and led to increased business uncertainty about the outlook,” Pollyanna De Lima, economics associate director at IHS Markit, said in a release.

“It is clear that the early part of 2021 will continue to be challenging and we’re looking at a sustainable recovery and some return to normality once Covid-19 vaccines become available.”

India has the second-highest number of coronavirus infections in the world. On Sunday it approved two coronavirus vaccines for emergency use but it could take years to vaccinate over 1.3 billion people with its rudimentary healthcare system.

Although a sub-index monitoring overall demand ended a rough 2020 in growth territory, it declined to a three-month low as night curfews in some major cities depressed demand.

Demand from abroad remained firmly in contraction territory as many countries reimposed lockdown measures to contain a fresh spike in Covid-19 cases.

Weak demand forced firms to lower their prices despite an uptick in input costs, which increased at the quickest pace since February.

Meanwhile, job market conditions darkened, slipping back into contraction, although the pace of job shedding remained minimal.

“Given the damaging impact of the pandemic on the service economy, some companies are facing financial difficulties, which is preventing staff hiring. December saw the ninth round of job shedding in ten months,” De Lima added.

Optimism about the next 12 months faded at the end of the year as firms were concerned about the uncertainty surrounding the pandemic, the rupee’s depreciation and rising inflationary pressures, the survey showed.

Despite a pick-up in factory activity, sluggish demand for services meant the India composite PMI fell to a three-month low of 54.9.