The India Services Business Activity Index rose to 55.3 in February from 52.8 in January. A figure above 50 indicates expansion, while a sub-50 reading shows contraction.
However, employment continued to fall for the third month in a row and companies noted the sharpest rise in overall expenses for eight years.
Transport & storage was the best-performing segment of the service sector among the five categories monitored by the survey, recording the strongest increases in new business and output during February. Information & communication was the only sub-sector to post contraction in sales and business activity. Companies in this category also bucked the general trend of positive growth projections and signalled a neutral outlook for output, according the survey.
A sister survey on Monday showed manufacturing activity declining marginally to 57.5 in February from 57.7 a month ago.
Put together, Indian private sector output rose at the quickest pace in four months with the Composite PMI Output Index rising to 57.3 from 55.8 in January.
“Economic activity is generally expected to recover in the final quarter of fiscal year 2020/21 after coming out of technical recession in Q3, and the latest improvement in the PMI indicators points to a strong expansion in the fourth quarter should growth momentum be sustained in March,” said Pollyanna De Lima, Economics Associate Director at IHS Markit.
She said there were further jobs losses across both the manufacturing and service sectors, which also could restrict domestic consumption in the coming months.
“However, with capacity pressures mounting, business sentiment strengthening and the vaccination programme widening, it seems that the best days are ahead of us regarding employment growth,” De Lima said.
India’s economy recovered in the December quarter to expand at 0.4% after two consecutive quarters of contraction hit by the Covid-19 pandemic.