The HSBC Services Purchasing Managers' Index (PMI) , compiled by Markit, fell to 52.2 in July from June's 17-month high of 54.4.
The country's dominant services industry hit a rough patch in 2013 and overall activity shrank for nearly a year but starting to expand again in May. A reading above 50 denotes expansion while below signals a contraction.
"Growth in the services sector softened in July after a big jump in the previous month. Nevertheless, the sector recorded its third consecutive month of expansion," said Frederic Neumann, co-head of Asian Economic Research at HSBC.
China's services firms were in a similar situation. Official PMI data released on Monday showed growth slipped to a six-month low in July as new orders rose at their weakest pace in almost a year.
While order books were not in as bad a shape among Indian firms, some businesses did defer hiring plans. The employment PMI dipped below the break-even mark to 49.8 from July's 50.1.
The services PMI data also showed input costs rose at a slower rate in July and that firms were able to pass on a slightly bigger portion to customers by raising prices.
"Final prices were marked up at a faster pace to reflect rising costs, underscoring the need for the Reserve Bank of India to remain cautious about inflation risks," said Neumann.
The RBI is expected to keep interest rates steady later on Tursday but toughen up its rhetoric on inflation amid fears of a spike in food prices if monsoon rains are below average.
Services sector registers slower pace of growth in July: HSBC
(PTI): India's services sector registered the third consecutive month of expansion in July, but the pace of growth was significantly down from the previous month due to moderation in order flows, an HSBC survey said.
The headline HSBC Services Business Activity Index stood at 52.2 in July, down from June's 17-month peak of 54.4, as there was moderation in business flows and market sentiment as against the previous month.
A reading above 50 shows that the sector is expanding, while that below 50 shows that the output in the sector is contracting.
"Growth in the services sector softened in July after a big jump in the previous month. Nevertheless, the sector recorded its third consecutive month of expansion, following several months of subdued activity," HSBC Co-Head of Asian Economic Research Frederic Neumann said.
Earlier this week, the HSBC/Markit manufacturing PMI showed that the manufacturing sector growth jumped to a 17-month high in July.
Accordingly, the headline HSBC Composite Output Index stood at 53.0 in July, down from June's 16-month high of 53.8.
Meanwhile, the slow order flows also had an impact on the employment scenario as staffing levels in the services and manufacturing sectors fell fractionally in July.
Accordingly, employment fell across the private sector for the first time since April.
Going forward, Indian services companies are optimistic about future business activity on the back of stronger demand, new government policies and the introduction of new marketing initiatives.
On prices, the report said there was a moderate rise in output prices across the private sector.
"Final prices were marked up at a faster pace to reflect rising costs, underscoring the need for RBI to remain cautious about inflation risks," Neumann added.
The Reserve Bank of India, in its policy review meet today, kept key interest rates unchanged, while reducing SLR by 0.5 per cent to 22 per cent.