"While the business activity index improved, it remained below the water line. This points to still subdued service sector activity," said Leif Eskesen, chief economist for India and ASEAN at HSBC.
New business fell at a slower pace in April but the employment sub-index slipped just below the 50-level to 49.8 as firms reacted to falling workloads.
Tuesday's business survey also showed input costs and prices charged by services companies increased at a quicker pace last month.
In contrast, input and output prices rose at the slowest pace in about a year among Indian factories, a similar poll of manufacturers found last week.
Indian factory growth showed no sign of acceleration last month as tepid demand restrained output even as price pressures eased.