Indian Service Sector: Job cuts and anxious future to prevail

In India, the service sector which is a major contributor to economic growth and jobs has been weighed down due to the pandemic. There was a loss of momentum in December 2020 as cases began to rise and new businesses and employees were affected, according to a private survey, reported by Reuters.

India is Asia’s third-largest economy and has been steadily recovering from the recession produced by the coronavirus. There is no expectation to return to pre-pandemic levels while the economy fights to merely stay afloat, specifically within the service industry.

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

Pollyanna De Lima, economics associate director at IHS Markit, said, “A spike in COVID-19 cases was reported as a key factor restricting the 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.”

She continued to say, “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 gained the second-highest number of coronavirus infections in the world. Two vaccines – Bharat Biotech’s Covaxin and Oxford-AstraZeneca’s Covishield – received emergency approval but with the sheer high level of the population being 1.3 billion and rudimentary healthcare system, it would take years to vaccinate all citizens.

A very rough 2020 was left ingrown territory due to a sub-index monitoring overall demand; this declined to a three-month low as night curfews were imposed in some major countries leading to depressed demand.

Foreign demand or demand from other countries remains strictly in contraction territory as many countries have re-enforced full-fledged lockdown procedures.

This weak demand forced firms to lower their prices even though there is an uptick in input costs, which increased at the quickest speed since February. At the same time, job market conditions have darkened with recent graduates losing their positions and firms shutting down due to intense costs. This has slipped back into contraction, although the pace of job shredding has remained minimal.

Lastly, Lima added, “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.”

While attempting to remain optimistic about the next 12 months of 2021, this faded at the end of 2020 as firms were anxious about the uncertainty associated with the COVID-19 pandemic, rupee’s depreciation and rising inflationary pressure, according to a recent survey.

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

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