The index has been above the 50-mark that separates growth from contraction for a year and July's reading was higher than the long-term average.

The survey showed India was on a sustained recovery path but rising prices could prompt the RBI to hike interest rates earlier than expected, putting brakes on the growth.

India factory activity growth slowed significantly in May as a surge in coronavirus cases hit new orders and output while scarcity of raw materials drove up input costs.

Input costs of services companies rose at the fastest rate since December 2011. The strongest increase was seen in consumer services.

However, the report noted that the main area of concern is the extent to which costs are rising across the services economy, with the rate of inflation remaining above trend.

The fall came due to a significant drop in vegetable and food prices, a Reuters poll predicted.

Retail inflation has stayed above the central bank's comfort zone of 2-6% for seven consecutive months, a streak not seen since August 2014.