For the second consecutive month, India's services sector activity remained in the growth territory. Business activity in the sector has witnessed the strongest growth since October 2016 amid improved demand conditions. The seasonally adjusted Nikkei India Services Business Activity Index rose from 52.6 in June to 54.2 in July.

In PMI (Purchasing Market Index) parlance, a print above 50 means expansion, while a score below that denotes contraction. "July data was encouraging as the service sector observed the best performance since October 2016, underpinned by the strongest gain in new orders since June 2017," said Aashna Dodhia, Economist at IHS Markit, and author of the report.

With improved demand conditions, business confidence towards the 12-month outlook picked up from June's recent low. Additionally, firms have raised their staffing levels at the strongest pace since April.

Meanwhile, the headline seasonally adjusted Nikkei India Composite PMI Output Index, that maps both the manufacturing and services sector, increased from 53.3 in June to 54.1 in July.

"Marked expansions in both the manufacturing and service sector, with stronger growth in the latter, powered the fastest improvement in overall operating conditions in the economy since October 2016," Dodhia, said.

On the prices front, inflationary pressures sustained in July. "There are some warning signs reflected by PMI price data. Although overall input cost inflation softened from June's near four-year high, service companies faced the fastest rise in input costs since March amid reports of high oil prices," Dodhia said.

On the Reserve Bank's policy stance, he said, "Indeed, an uncertain global climate, currency weakness, and strong inflation may continue to place pressure on the central bank to hike interest rates over the coming months". The six-member Monetary Policy Committee (MPC) headed by RBI Governor Urjit Patel for the second time in two-month raised interest rate by 0.25 percent on inflationary concerns.

Inputs from PTI