Services sector activity, which contributes to over half of India's gross domestic product (GDP), contracted for the fourth straight month in June but the pace of contraction softened.
Service sector activity measured by Purchasing Manager's Index (PMI) data released by IHS Markit, stood at 33.7 in June, up from 12.6 in May.
A reading above 50 indicates growth, while below 50 signals contraction.
While the data shows that weakening of deterioration as output levels stabilised, negative sentiments remained as businesses struggled with staff availability while others had to lay-off personnel due to lower requirement.
"Although the downturn lost further momentum in June, it remained excessively strong as the COVID-19 pandemic curtailed intakes of new work and disrupted business operations. The slower rate of decline was reflective of some stabilisation in activity levels, with around 59% of firms reporting no change in output since May. Meanwhile, only 4% registered growth, while 37% recorded a reduction," IHS Markit said.
"India's services sector continued to struggle in June as the country's coronavirus crisis worsened. Simply put, the country is in the grips of an unprecedented economic downturn, which is certainly going to spill over into the second half of this year unless the infection rate can be brought under control," said Joe Hayes, economist at IHS Markit.
Services companies surveyed in June became more pessimistic towards their prospects over the coming 12 months. "Business confidence slid to a survey low and also pointed to strongly negative expectations towards activity levels in the year ahead. The heightened risk of a protracted recession was commonly noted by pessimistic firms," IHS Markit added.