Thanks Nate. Using the libgdx texturepacker solved the index problem. Just posting an update in case it helps others.
I switched to the libgdx texturepacker. The GUI tool returns error if I use "useIndexes" in the pack.json settings file. Other settings work fine but if I add "useIndexes: true (or false)" setting, it gives an error:
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Starting TexturePacker for pack '*****'
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[error] Exception occured: Error packing files.
I switched to the command line version:
java -cp gdx.jar:extensions/gdx-tools/gdx-tools.jar com.badlogic.gdx.tools.imagepacker.TexturePacker2
and the same folder with same pack.json setting file worked as expected.