The sector, which grew by 9.7 per cent in the previous year, however remains the key driver of India's economic growth, contributing almost 62 per cent of its gross value added growth in 2016-17.
Policies like GST and FDI liberalisation coupled with initiatives for promoting digitalisation, tourism and shipping have brightened the growth prospects for this sector, the mid-year survey which was tabled in Parliament on Friday said.
"India's services sector growth, which was highly resilient even during the global financial crisis, has been showing moderation in recent times," it said.
The growth of this sector has moderated to 7.7 per cent in 2016-17 compared to 9.7 per cent achieved in the previous year, it added.
The survey said slowdown in the sector was mainly due to deceleration in growth in two services categories - trade, hotels, transport, communication and services related to broadcasting (7.8 per cent), and financial, real estate and professional services (5.7 per cent).
However, pick up is seen in recent months with some segments of the sector showing better performance, it said.
"In 2016-17, services exports recorded a positive growth of 5.7 per cent with pick up in some major sectors like transportation, business services and financial services; and good growth in travel," the survey said.
However, software services exports, accounting for around 45.2 per cent of total services, declined though marginally by 0.7 per cent, it added.
The survey said some services continued to be key drivers of India's economic growth and highlighted reasonably good performance in telecom with "increase in telecom connections reflecting the Jio effect" and aviation particularly domestic travel among them.
Besides, tourism related services also chipped in particularly in terms of foreign exchange earnings along with information technology-business process management (IT-BPM) despite fall in growth in computer software.
Citing the latest World Trade Organisation (WTO) data for 2016, the survey said services export growth is in negative territory for many economies, though for India it is positive at 3.6 per cent and higher than the 0.4 per cent global services export growth.
In the US, the sector growth growth decelerated to 1.9 per cent in 2016 from 2.8 per cent in 2015 mainly due to slowdown in sectors like real estate, professional and business services.
Likewise, China also witnessed slight deceleration in the growth rate of services sector to 7.8 per cent in 2016 from 8.3 per cent in 2015.
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)