The HSBC India Composite Output Index, which maps both services and manufacturing, increased from 48.9 in March to 49.5 in April, but remained below the crucial 50 mark which indicates contraction for the second successive month.
Meanwhile, the HSBC services business activity index inched up from 47.5 in March to 48.5 in April, but this index too remained below the 50 mark.
"While the Business Activity Index improved, it remained below the water line. This points to still subdued service sector activity," HSBC Chief Economist for India & ASEAN Leif Eskesen said.
According to survey participants, a difficult economic climate, combined with the elections and a further drop in new orders had all contributed to the latest fall in business activity.
Private sector companies registered lower new business for the second month running and workforce numbers in the private sector as a whole remained broadly unchanged.
In terms of price rise, the report said that input prices faced by Indian services firms continued to rise in April, with panelists reporting higher prices paid for food, packaging materials, fuel and paper.
"The slight uptick in inflation readings suggests that inflation pressures are still lingering, which calls for the RBI to continue its starring contest with inflation," Eskesen said.
The RBI had increased the key policy repo rate three times since Raghuram Rajan took over as Governor in September.
Going forward, business sentiment in the service sector remained positive in April.
The survey respondents indicated that a combination of planned increases in marketing budgets, launch of new services and forecasts of stronger demand are all expected to result in output growth over the course of the next year.