BENGALURU, April 4 (Reuters) - India's factory activity expanded at a slower pace in March as rising prices meant new orders and output grew at their weakest rate since September, according to a survey released on Monday that also showed optimism at a two-year low.
The survey provides the latest evidence the recovery in Asia's third-largest economy is slowing. Hikes in oil prices, primarily driven by uncertainties around the Russia-Ukraine war, have already taken a toll on consumer spending - the biggest contributor to GDP growth.
Compiled by S&P Global, the Manufacturing Purchasing Managers' Index declined to 54.0 in March from 54.9 in February. However, it has remained above the 50-level separating growth from contraction for nine straight months.
Despite that decline, the sector had its best annual fiscal year performance since FY 2011/12.
"Manufacturing sector growth in India weakened at the end of fiscal year 2021/22, with companies reporting softer expansions in new orders and production," noted Pollyanna De Lima, economics associate director at S&P Global.
"The slowdown was accompanied by an intensification of inflationary pressures, although the rate of increase in input costs remained below those seen towards the end of 2021."
Sub-indexes tracking new orders and output were at six-month lows and foreign demand contracted for the first time since June 2021, highlighting a weakening global economic recovery and a slowdown in China.
But factories increased headcount for the first time in four months.
Still, rising cost pressures remained one of the main concerns as firms faced a faster increase in input prices last month, forcing them to transfer some of that burden to consumers. Output prices rose at the quickest rate in five months.
"For now, demand has been sufficiently strong to withstand price hikes, but should inflation continue to gather pace we may see a more significant slowdown, if not an outright contraction in sales," added De Lima.
"Companies themselves appeared very concerned about price pressures, which was a key factor dragging down business confidence to a two-year low."
Like other major economies, India is experiencing a persistent surge in inflation due to elevated supply disruptions and a jump in oil prices - the biggest component of the country's imports.
Reporting by Indradip Ghosh; Editing by Sam Holmes