The services sector contracted for the third straight month in July as business activity, new orders and employment declined further largely because of the Covid-19 pandemic and local restrictions, a monthly survey said on Wednesday.

The seasonally adjusted India Services Business Activity Index rose from 41.2 in June to 45.4 in July, but was stuck in the contraction zone because of subdued demand conditions amid the Covid crisis. In Purchasing Managers’ Index (PMI) parlance, a print above 50 means expansion, while a score below 50 denotes contraction.

‘‘The current Covid-19 environment continued to weigh on the performance of the service sector that is so crucial to the Indian economy. July data was somewhat disappointing, with incoming new business and output falling solidly over the month, but there was at least a slowdown in the rates of contraction,’’ Pollyanna De Lima, economics associate director at IHS Markit, said.

Grim outlook

Looking ahead, firms were pessimistic about the 12-month outlook for output for the first time in a year.

‘‘Uncertainty over when the pandemic will end, as well as concerns about inflationary pressures and financial troubles, dampened business confidence in July. Service providers were pessimistic towards the outlook for business activity for the first time in a year,’’ Lima said.

In line with sustained falls in new work, there was a further reduction in service sector jobs during July.

Employment contracted for the eighth consecutive month, albeit at a moderate pace that was slower than that seen in June. Another factor weighing on jobs was an overall view that business activity will decline over the course of the coming 12 months.

"Companies were pessimistic for the first time in a year. The downbeat assessment for output stemmed from concerns over the pandemic, margins and inflation," the survey noted.