India's services activity at 5-month high in Apr despite inflation worries

Activity in India's dominant services sector grew at its fastest pace in five months in April on strong demand, prompting firms to add jobs for the first time since November, a private survey showed, but sky-rocketing inflation remained a major concern.

The S&P Global India Services Purchasing Managers' Index rose to 57.9 in April from 53.6 in March, its highest since November and surpassing the 54.0 estimate in a Reuters poll.

While the index remained above the 50-mark separating growth from contraction for a ninth straight month, it was the best start to a fiscal year for the sector since 2011/12.

"In isolation, the PMI data for the service sector were mostly encouraging, as surging demand underpinned quicker increases in new business inflows and output," noted Pollyanna De Lima, economics associate director at S&P Global.

"Consumer services and finance and insurance were the top-performing areas of the service economy, while real estate and business services was the only sub-sector to post contractions in sales and output."

Although a sub-index tracking new business rose to a five-month high in April, aided by the easing of COVID-19 restrictions, new export business contracted at the quickest rate in seven months as concerns over the Russia-Ukraine war and a slowdown in China have dragged on global economic activity.

Still, firms were encouraged to increase staffing for the first time in five months, albeit at a marginal rate. That kind of weak growth is unlikely to boost the employment situation significantly.

Meanwhile, like most parts of the globe, Asia's third-largest economy is feeling burnt by surging inflation, which accelerated to a 17-month high in March.

While input costs increased at the fastest rate in nearly 14 years, prices charged rose at their quickest rate in around half a decade.

The trend of persistently high inflation pushed the Reserve Bank of India to hike its key lending rate by 40 basis points in a surprise move on Wednesday.

"Service providers reported having paid more for food, fuel and materials, with some mentions of higher wage costs also pushing up overall expenses," added De Lima.

Concerns over rising price pressures led a sub-index tracking business expectations over the coming 12 months to a three-month low.

However, strong services activity and quicker manufacturing growth boosted the composite index to its highest in five months, rising to 57.6 in April from 54.3 in March.