HSBC's services PMI -- an index of Indian services sector activity -- posted 55.0 in August, which is an increase of 0.8 points compared to 54.2 in July. The expansion brings in optimism in the industry at a time when India's manufacturing sector is struggling on weak demand overseas.
The index for the sector, which constitutes nearly 60 percent of the Indian economy, has remained above the 50-point mark since November last year. A figure above 50 indicates growth.
"The service sector continues to demonstrate resilience with activity picking up pace in August," said Leif Lybecker Eskesen, chief economist for India and Asean at HSBC.
The data depicted an increase in new orders, reflecting the growth trend. The new business sub-index rose to a six-month high of 55.9 in August, raising optimism for future business.
The inflationary trends showed a marginal decline, according to the data. The input prices increased at the slowest pace since December 2009. However, the report added that the benchmark inflation in the country is unlikely to cool anytime soon, restricting RBI's room for monetary easing.
"With inflation risks still lingering, partly on the back of deficient monsoons, and policy inaction from Delhi persisting, the RBI has little room and appetite for rate cuts," Eskesen said.
India Composite Output Index, which maps both services and manufacturing activity, stood at 54.3 in August from 54.4 in July.
"Service sector activity grew at a steady pace in July, with growth in new orders and employment holding up," said Eskesen.
Meanwhile, India's manufacturing sector witnessed a slowdown in July - the weakest growth rate in nine months - because of a sharp decline in domestic and export orders amid the sluggishness in the global economy. The weak growth in the U.S. market, along with the euro zone debt crisis, has dampened India's export market and Indian software companies have taken the maximum beating.
India's headline inflation rate dropped to 6.87 percent on an annual basis in August from 7.27 percent in July, but an uneven and poor monsoon, in addition to a slow economic growth, is expected to push inflation higher in the coming months.