Economic scenario remains grim, more stimulus is needed

The July Nikkei/ IHS Services purchasing managers index for India’s services sector recorded its fifth straight monthly contraction. The July reading was 34.2, way lower than 50 which is the line of demarcation between growth and contraction. Services represent the largest segment of the economy and the bleak outlook there will drag down overall economic growth.

The reading for the services sector comes in the backdrop of an ongoing meeting of the RBI’s monetary policy committee, whose outcome will be announced tomorrow. The key economic signals that will be considered are that while there was greater economic activity as compared to April and May when the lockdown was most stringent, the overall economic scenario remains grim. It’s important therefore for both monetary and fiscal authorities to stay focussed on areas of stress in the economy and find ways to improve the situation. The stimulus package announced in May won’t be enough.

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