indian economy slowdown
A waiter carries plates of food for customers at a restaurant in Mumbai, September 19, 2013.Reuters

Activity in India's dominant services industry expanded at a slower pace in August as demand softened, according to a business survey on Wednesday, although business optimism hit a one-year high.

The IHS Markit Services Purchasing Managers' Index declined to 52.4 in August from July's year high of 53.8, still comfortably above the 50-mark separating growth from contraction and higher than the 51.9 in a Reuters poll of analysts.

But that fall, alongside manufacturing growth at a 15-month low, pushed a composite index down to 52.6 in August from 53.9.

"The weaker PMI readings for India's service sector match the trend noted in the manufacturing industry, bringing unwelcome news of a cooling economy halfway through the second quarter of fiscal year 2019/20," said Pollyanna De Lima, principal economist at IHS Markit.

India's economy grew at an annual rate of 5.0% last quarter, its slowest in more than six years and significantly lower than 5.7% predicted in a Reuters poll.

Painting a downbeat picture for this quarter a new business sub-index that measures overall demand in the services industry fell sharply from a near three-year high in July of 53.9 to 51.0 last month, leading firms to increase hiring at a slower rate.

Demand weakened as firms increased their prices at the fastest pace since March 2018 despite a decline in input price inflation.

Overall inflation, which has remained below the Reserve Bank of India's medium-term target of 4% for 12 consecutive months, is not predicted to rise above that goal until early next year.

Muted price pressures and an economic slowdown are expected to prompt further easing by the RBI next month. The central bank has already cut a cumulative 110 basis points this year.

Rising expectations for further monetary policy easing and recent measures announced by the government boosted business expectations a 12-month high, the survey showed.

"Both manufacturers and service providers believe that supportive public policies can help shift growth momentum into a higher gear in the coming 12 months," added De Lima.