India’s dominant services sector reported a sharp contraction in April amid a nationwide lockdown to suppress the spread of COVID-19. Markit services PMI dropped to an all-time low of 5.4 in April from 49.3 in March, possibly the lowest level globally.
This is especially concerning as the services sector makes up more than half of India’s GDP, suggesting a double-digit drop in Q2 GDP growth is now likely. Manufacturing PMI, reported earlier this week, also weakened to 27.4 in April from 51.8 in March. Composite PMI, as a result, has dropped to 7.2 in April from 50.6 in March.
Many other high-frequency data points have pointed toward economy activity grinding to a halt in April. Key manufacturers reported zero car sales for the month, while private think tank the Center for Monitoring Indian Economy (CMIE) said that 122 million people—or more than 9% of the population—have become jobless in the past month. Goods and services tax collections for certain state governments have reportedly slumped by 80-90%.
It is no surprise that lockdown measures have hampered economic activity, but we are concerned that virus cases are still rising and cautious consumer behavior will likely last long after restrictions are relaxed. Meanwhile, India’s partial resumption of activity has been messy, suggesting a higher risk of a steep second wave of infections.
The restrained fiscal stimulus is further making matters worse, with India’s fiscal package at below 1.0% of GDP so far. Further delays in topping up support to the economy will only delay the recovery process.