The upturn in July came with a faster increase in new business underpinning stronger growth of output and boosting confidence, the survey said.
An index reading of above 50 indicates an overall increase, while below 50 an overall decrease. The PMI series of data are published by the leading global diversified provider of financial information services "IHS Markit".
"Part of the upswing in incoming new work was supported by price discounts. Output charges were lowered for the first time in nine months, while input costs also decreased," a statement from IHS Markit said.
"The Indian service economy started the second semester on a solid footing, posting its strongest performance since April and thereby indicating that underlying demand conditions remained reasonably firm," Pollyanna De Lima, economist at IHS Markit, was quoted as saying in the report.
Employment was broadly unchanged in both the manufacturing and service sectors during July, as indicated by the respective indices recording only fractionally above the crucial 50.0 threshold. It has now been over two-and-a-half years since the private sector has seen meaningful job creation, the survey said.
"Nevertheless, growth remains below-par compared with the long-run survey trend and, although expansion has been sustained for 13 consecutive months, the sector has so far failed to generate jobs," De Lima said.
"Service providers signalled declining price pressures, with output charges being cut in line with an overall decrease in input costs."
The Nikkei Manufacturing Purchasing Managers' Index released on August 1 rose to 51.8 in July from 51.7 in June.
"July data highlighted a second successive monthly increase in unfinished business volumes at Indian service providers. At manufacturers, work-in-hand rose at the fastest pace in one-and-a-half years," the report said.
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