Mumbai: India`s service sector recovered last month due to a faster pace of new business generation and historically muted inflationary pressure, a key macro-economic data showed on Monday.

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The seasonally adjusted Nikkei India Services PMI Business Activity Index registered a higher rate of expansion at 52.2 in May, up from April`s 50.2. An index reading of above 50 indicates an overall increase in economic activity, and below 50 an overall decrease.

The higher Services PMI coupled with Nikkei India Manufacturing PMI led to an accelerated growth in overall activity of India`s private sector.

Consequently, the Nikkei India Composite PMI Output Index reached a seven month high of 52.5 last month from 51.3 in April. 

"The pick-up in service sector growth seen mid-way through the first quarter (FY) suggests that GDP could expand at a faster rate should growth momentum be maintained in June, though there are downside perils to this," said Pollyanna De Lima, Economist at IHS Markit, and the author of the report.

"Despite accelerating from April, rates of increase in both services activity and new work are much weaker than typical for India. Moreover, business confidence fell as a reflection of firms` concerns regarding competitive pressures and lacklustre demand."

According to Pollyanna De Lima, the "uninspiring growth" of the manufacturing sector may prompt the Reserve Bank of India (RBI) to lower the benchmark rate in order to support the economy.