(Reuters) - Activity in India's dominant services sector increased at its fastest pace in three months in October, driven by a strong pick-up in new business, a private survey showed on Monday.
The Nikkei/IHS Markit Services Purchasing Managers' Index > rose to 52.2 last month from a four-month low of 50.9 in September, holding above the 50-mark that separates growth from contraction for five straight months.
A sub-index tracking demand jumped to 52.4 from September's 50.1, which, accompanied by a slower increase in both input costs and prices charged boosted overall activity and encouraged firms to accelerate hiring at the fastest pace in six months.
"Cost pressures faded in October. At the same time, a robust expansion in workforces - one of the best seen for over seven-and-a-half years - added to firms' expenses," noted Pollyanna De Lima, a principal economist at IHS Markit.
"The waning of cost inflation, coupled with competitive pressures, resulted in only a marginal uptick in charges."
Some firms said tougher competition was preventing them from lifting their prices.
Weaker cost pressures, alongside a decline in oil prices, may prevent inflation from shooting above the Reserve Bank of India's medium-term target of 4 percent.
The central bank surprised markets and kept interest rates on hold last month after increases in June and August. But it did shift its bias from "neutral" to "calibrated tightening".
Stronger services activity and better-than-expected growth in manufacturing led a composite index to increase to 53.0 last month from September's 51.6, with employment rising at its quickest rate in nearly eight-and-a-half years.
"A positive outlook is by no means assured, however. With business expectations about future activity dropping to the lowest for 20 months in both the manufacturing and service sectors, firms are becoming more guarded in the face of growing uncertainties," added de Lima.
"The sustainability of current market conditions and political worries both weighed on optimism and pose downside risks to growth."
(Reporting by Indradip Ghosh; Editing by Kim Coghill)
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