Activity in India’s dominant services sector contracted sharply in June as tighter restrictions to contain a resurgence of coronavirus cases hammered demand and forced firms to shed jobs at a rapid clip, a private survey showed on Monday.

IHS Markit’s Services Purchasing Managers’ Index plunged to 41.2 last month from an already depressed 46.4 in May. That was its lowest reading since July 2020 and well below the 50-level separating growth from contraction.

“Given the current Covid-19 situation in India, it was expected that the services sector would take a hit. PMI data for June showed quicker declines in new business, output and employment that were sharp, but much softer than those recorded in the first lockdown,” said Pollyanna De Lima, economics associate director at IHS Markit.

Subdued demand conditions resulted in a second successive monthly drop in new business received by services firms. The pace of contraction was sharp and the quickest since July 2020, the survey said.

In Purchasing Managers’ Index (PMI) parlance, a print above 50 means expansion, while a score below 50 denotes contraction.

The international demand for Indian services deteriorated further in June, with new export orders falling for the 16th consecutive month.

“The drop in India’s PMI readings for June should soon reverse as the second virus wave has subsided and restrictions are being eased. But a rapid reopening increases the risks of fresh outbreaks, which could throw the recovery off course once more,” Darren Aw, Asia economist, Capital Economics, said.

Meanwhile, the overall level of business sentiment was down for the third month in a row in June, reaching its lowest mark since last August. The Covid-19 pandemic was the main factor seen as a threat to the outlook among survey participants.

“Uncertainty about the path of the pandemic restricted business confidence among services firms, which were generally neutral in their forecasts for output in the year ahead. The overall level of sentiment slipped to a 10-month low,” Lima said.

Lima noted that “with India expanding its vaccine options and the government announcing ambitious plans to immunise the entire adult population by the end of the year, it is hoped that the pandemic can be brought under control and a sustainable economic recovery can begin”.

Private sector companies in India noted a second successive monthly decline in business activity during June as market conditions remained challenging because of the escalation of the pandemic.

The Composite PMI Output Index, which measures combined services and manufacturing output, fell from 48.1 in May to 43.1 in June, signalling the sharpest rate of reduction since July 2020.