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April Services Growth Inches Up, Optimism Building

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India's services sector growth accelerated a touch in April thanks to a rise in new business, and optimism hit its highest level since June 2011, a survey showed.

HSBC's Business Activity Index, compiled by Markit, rose to 52.8 in April from 52.3 in March.

This coincides with Wednesday's factory data, which showed growth inching up on rising orders.

The services index has stayed above the 50-mark that separates growth from contraction for six months now, echoing similar trends among other emerging economies.

An increase in the pace of new business has been a key factor behind healthy services sector growth in Russia and China.

India's services firms benefited from a rise in the new business sub-index to 55.1 from 54.8 in March.

This allowed them to add jobs for the second month in a row and at the fastest pace since last June.

"Service sector activity accelerated slightly in April on the back of a rise in new business, which supported a marginal pick-up in sequential employment growth," said Leif Eskesen, economist at HSBC.

In turn, confidence regarding future business also rose to its highest in 10 months.

Services sectors in China and Russia have also witnessed a rise in confidence levels, with China's firms, in particular, being their most optimistic in 11 months during March.

However, the wider Indian economy does not paint as healthy a picture as the services sector.

India's industrial output growth for February was sluggish, to say the least and growth estimates have been revised downwards for the fifth straight quarterly Reuters poll, with the latest April survey predicting growth of 7.1 percent for fiscal year 2012-13.

The government forecasts an optimistic 7.6 percent rate for the same period. But, for an economy that clocked near double-digit growth rates before the 2008-09 financial crisis struck, even that number is low in comparison.

Meanwhile, the threat of high inflation, which has been one of the biggest potholes in the Indian growth story, does not seem to have abated.

India's wholesale price index, the main measure of price rises, eased only slightly in March and the Reserve Bank of India (RBI) said upward inflation pressures will persist.

A sagging economy forced the RBI to cut interest rates for the first time in three years on April 17 but the central bank warned there was limited scope for more cuts.

The services sector data also showed that inflation remains a risk, with both prices charged and input prices continuing to rise in April.


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