Services growth at eight-month high in Feb - HSBC PMI

REUTERS - Activity in India's services industry expanded at its fastest pace in eight months in February as improving domestic demand drove a surge in new orders, a business survey showed on Wednesday.

Increased activity at service firms, which make up over half the economy, is good news for policymakers - especially after last week's first annual budget from Prime Minister Narendra Modi's government failed to deliver big-bang reforms.

The HSBC Services Purchasing Managers' Index, which surveys around 350 private companies and is compiled by Markit, rose to 53.9 in February from 52.4, its highest since June 2014. A reading above 50 indicates growth.

The new business sub-index, which measures demand, jumped to an eight-month high of 54.1 from 52.1, and while optimism moderated it remained fairly high.

"Boosted by a solid rise in new work, service sector output in India expanded at a robust rate in February ... Nonetheless, the latest improvement in economic prospects across the sector is yet to feed through to the labour market," said Pollyanna De Lima, an economist at Markit.

The survey showed staff levels fell slightly, while some firms reported a shortage of skilled workers.

Both input and output prices rose at a slower pace last month, indicating inflation is likely to remain subdued.

"Reflecting lower fuel prices, overall costs faced by services firms rose at a softer rate. However, with demand gaining strength, the RBI is likely to remain cautious when deciding on interest rates," added De Lima.

The Reserve Bank of India and the government agreed last month to overhaul monetary policy and set an inflation target of 4 percent by March 2017.

That target is unlikely to prove challenging as consumer inflation, at 5.11 percent in January, has already halved since late-2013.

(Reporting By Siddharth Iyer; Editing by Kim Coghill)