India's services sector slump eased in September, but job losses balloon

The plunge in India's services sector activity eased considerably in September after the government lifted some coronavirus restrictions, but demand continued to contract, prompting firms to cut more jobs, a private business survey showed on Tuesday.

Signs of stabilisation in services are likely to provide more comfort to policymakers after a sister survey on Thursday showed India's manufacturing expanded at its fastest pace in over eight years, suggesting business conditions were gradually returning to normal in Asia's third-largest economy.

The Nikkei/IHS Markit Services Purchasing Managers' Index bounced to 49.8 in September from August's 41.8, a touch below the 50 mark that separates expansion from contraction on a monthly basis.

But September was the seventh straight month that activity had contracted, the longest such stretch since a 10-month run to early 2014.

"The relaxation of lockdown rules in India helped the service sector move towards a recovery in September. Participants of the PMI survey signalled broadly stable business activity and a much softer decline in new work intakes," Pollyanna De Lima, economics associate director at IHS Markit, said in a release.

But the root cause of chronic business disruption shows no sign of abating as the coronavirus death toll in the world's second-most populous country rose past 100,000, only the third country in the world to reach that bleak milestone, after the United States and Brazil.

The services sector accounts for around 55% of India's economy and nearly a third of its jobs.

Even if restrictions are eased further, the economy is unlikely to return to pre-Covid-19 levels in the coming year as people remain cautious about discretionary spending and millions more are pushed into poverty.

Although improved from August, sub-indexes tracking domestic and foreign demand remained firmly in contraction territory, leading firms to reduce their workforce for the seventh straight month, the longest streak on record.

Weak demand also forced firms to absorb much of a jump in input costs, which increased at the quickest pace since February.

After giving a neutral outlook in August, services firms were optimistic for the first time since April about the year ahead, largely on hopes that a vaccine for Covid-19 would be rolled out.

However, the World Health Organization does not expect widespread Covid-19 vaccinations until mid-2021 and it would likely take years to vaccinate India's 1.3 billion people.

A composite index, which measures both services and factory activity, returned to growth for the first time in six months, rising to 54.6 last month from August's 46.0.