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India’s Services Sector Growth Slows to Three – Month Low in June , Raising Economic Concerns

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Kolkata , July 5 , 2023 , India’s services sector experienced a slowdown in growth during the month of June, reaching a three-month low, according to the latest data released by the IHS Markit India Services Purchasing Managers’ Index (PMI). The report indicates that the COVID-19 pandemic’s lingering effects and the emergence of new challenges have contributed to this decline.

The PMI for India’s services sector dropped to 51.0 in June, down from 54.0 in May. A reading above 50.0 indicates expansion, while a reading below 50.0 suggests contraction. Although the sector’s growth remains in positive territory, the rate of expansion has slowed significantly, raising concerns about the pace of economic recovery.

The survey attributes the deceleration to a combination of factors, including localized lockdowns and restrictions imposed by several states to contain the spread of the Delta variant of COVID-19. These measures disrupted business operations, particularly in industries heavily reliant on human interaction, such as hospitality, travel, and tourism.

Furthermore, the report notes that the services sector has faced challenges such as rising input costs, supply chain disruptions, and a shortage of skilled labour. These factors have dampened business sentiment, impacting new orders and employment growth. Respondents also expressed concerns about inflationary pressures, with input costs increasing at the sharpest rate in over a decade.

Within the services sector, sub-categories experienced varying levels of growth. While financial services, IT and business process outsourcing (BPO), and healthcare providers continued to expand, albeit at a slower pace, there was a notable contraction in the hospitality and transport sectors. With the imposition of local restrictions, consumer-facing businesses struggled to regain momentum.

Economists and experts believe that the slowdown in the services sector, which accounts for a significant portion of India’s GDP, raises concerns about the overall economic recovery and highlights the need for targeted policy interventions. The government’s focus on vaccination drives and efforts to contain the virus’s spread will play a crucial role in mitigating the impact on the services sector and ensuring a sustained rebound.

The report concludes that while the services sector growth has eased to a three-month low in June, it remains to be seen how the situation evolves in the coming months. The pace of vaccination, containment measures, and the government’s support will be key determinants in reviving the sector and bolstering India’s economic growth.

As policymakers and businesses continue to navigate the challenges posed by the pandemic, concerted efforts will be necessary to revive the services sector and pave the way for a robust recovery in the Indian economy.

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