The HSBC/Markit purchasing managers index for the services industry stood at 50.6 in August, down from 52.2 in July, indicating a slowdown in the sector activity as new business expanded at a weaker pace.
The latest reading, however, highlighted a fourth consecutive monthly expansion in service sector output. A reading above 50 shows that the sector is expanding, while a reading below it depicts contraction of output.
"Growth in service sector activity slowed in August. Moreover, the improvement in new business flows and business optimism moderated," HSBC Co-Head of Asian Economic Research Frederic Neumann said adding that "an improvement in reform momentum is needed to lift sentiment in the sector".
Indian services firms registered a fourth successive monthly rise in new orders in August, although the pace of expansion slowed from July.
India's services sector expanded for the first time in nearly a year during May this year on rebound in new business orders and an overall improvement in client demand.
The boost to business, post Lok Sabha elections, was largely driven by sentiments that the decisive verdict would further drive up activity in the sector.
During August, workforce numbers in the Indian service sector were unchanged, as the vast majority of companies reported no change in staff levels.
On inflation, Neumann said "on the positive side, weaker activity has softened inflation indicators within the survey".
Private sector companies across the economy as a whole noted a slowdown in cost pressures from the previous month.
Expectations regarding future activity at service providers remained positive in August, although the index dropped to its lowest level in 11 months.
Meanwhile, the HSBC Composite Output Index stood at 51.6 in August, down from 53.0 in July, indicating a slowdown in output growth across the private sector, that weakened from July at both services and manufacturing companies.
Indian services growth slowed in August, orders waned
(Reuters) Indian services activity expanded at its weakest rate in three months in August as firms' order books filled up at a slower pace, a business survey showed on Wednesday.
The HSBC Services Purchasing Managers' Index (PMI) , compiled by Markit, fell to 50.6 in August from 52.2 in July. A number above 50 denotes growth while anything below implies contraction.
The new business sub-index fell to 51.9 from 52.6, a three-month low.
Service firms were not alone in reporting lower order volumes. Factory surveys on Monday showed new orders slowed for companies across Asia and Europe as tensions between Russia and Ukraine escalated and a patchy recovery in China.
India's services activity expanded for the first time in May after shrinking for 10 months, right around the time Prime Minister Narendra Modi's Bharatiya Janata Party scored a landslide election victory that drove a wave of optimism.
That helped India's economy to grow at its fastest pace in two-and-a-half years in the quarter to June, data released last week showed.
But Modi is yet to launch sweeping reforms aimed at pushing the economy back to the double-digit growth rates of late 2009-early 2010.
"Services activity is once again turning down following a swift post-election uptick, suggesting that an improvement in reform momentum is needed to lift sentiment in the sector," said Frederic Neumann, co-head of Asian economic research at HSBC.
Firms' optimism about future activity, considered a good gauge for growth, was at a near-year low and suggesting inflation might cool both input prices and those paid by customers rose at a slower pace, the survey showed.