Indian service sector activity in April surged to its highest level in five months, highlighting a sharp rate of expansion that was the fastest since last November.

The seasonally adjusted S&P Global India Services PMI Business Activity Index rose to 57.9 in April, up from 53.6 in March. A reading above 50 indicates an overall increase in output.

Inflation concerns, however, continued to dampen business confidence. Inflationary pressures intensified with a near-record upturn in input costs underpinning the strongest rise in output charges in just under five years, the survey shows.

"The PMI data for the service sector were mostly encouraging, as surging demand underpinned quicker increases in new business inflows and output," says Pollyanna De Lima, economics associate director at S&P Global. "Employment rose for the first time in five months, but business sentiment was restrained by inflation concerns," Lima adds.

New business inflows expanded further in April, taking the current sequence of growth to nine months, the survey says.

Anecdotal evidence indicated that output was boosted by higher bookings, the easing of pandemic-related restrictions and favourable demand conditions, it adds. "Survey members continued to suggest that the lifting of Covid-19 restrictions led to greater consumer footfall and a general improvement in demand."

Owing to a combination of recovering demand and sharp cost pressures, Indian service providers lifted their selling prices again at the start of fiscal year 2022-23. The rate of charge inflation was the highest in close to five years.

April data pointed to soaring operating expenses at Indian services firms. "Service providers reported having paid more for food, fuel and materials, with some mentions of higher wage costs also pushing up overall expenses," says Lima. "The overall rate of inflation quickened to the second-highest in the survey history, leading companies to hike their selling prices to the greatest extent in close to five years."

"Consumer Services and Finance & Insurance were the top-performing areas of the service economy, while Real Estate & Business Services was the only sub-sector to post contractions in sales and output," Lima adds.

International demand for Indian services worsened in April, a trend that has been recorded in each month since the onset of Covid-19 in March 2020, the survey shows. New orders from abroad fell at a marked pace that was the quickest since September 2021.

Meanwhile, faster increases in both manufacturing production and services activity contributed to a stronger expansion in private sector output across India. The S&P Global India Composite PMI Output Index rose from 54.3 in March to 57.6 in April, recording the quickest pace of growth in five months.

Output was boosted by ongoing increases in new work intakes, with private sector sales also rising at the fastest rate since last November. Growth accelerated at both goods producers and service providers.

April data pointed to renewed job creation in the private sector, with slight increases in employment seen among manufacturing firms and their services counterparts, the survey says. "Aggregate input costs continued to increase in April, with the overall rate of inflation climbing to its highest in over 11 years."

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