Following a marginal contraction in May, the services sector returned to growth during June and registered the fastest rate of expansion in a year, supported by robust increase in new business orders, said a monthly survey.
The seasonally adjusted Nikkei India Services Business Activity Index rose from 49.6 in May to 52.6, registering the fastest growth since June 2017.
In PMI parlance, a print above 50 means expansion, while a score below that denotes contraction.
"The service economy returned to expansion territory in June. Encouragingly, the latest performance was the strongest seen in a year, against a backdrop of improving demand conditions," said Aashna Dodhia, Economist at IHS Markit, and author of the report.
Reflecting improved demand conditions, jobs growth picked up from May's five-month low.
"In response to an improvement in demand conditions, service providers raised their staffing levels at a faster pace than in the previous survey period," Dodhia said.
On the price front, input cost inflation remained solid overall, however, services providers were unable to fully pass on higher input costs to price-sensitive consumers.
"Overall input costs rose at the strongest rate since July 2014, and amid a weak rupee and higher oil prices, inflation may remain elevated," Dodhia said, adding that given these circumstances, the chances of further monetary policy tightening have heightened.
In June, the Reserve Bank of India had upped its retail inflation projection by 0.30 per cent and kept the policy stance in the neutral zone, even as it hiked the key rate by 0.25 per cent to 6.25 per cent.
Meanwhile, the seasonally adjusted Nikkei India Composite PMI Output Index, that maps both the manufacturing and the services industry, rose from 50.4 in May to 53.3 in June.
The latest reading is the strongest since October 2016, indicative of a solid rate of expansion.
"The PMI data signalled the best improvement in the overall health of the economy since October 2016, propelled by solid growth in both the manufacturing and service economies," Dodhia said.