The growth of the country's manufacturing sector rose in February on the back of strong growth in domestic orders and strengthening of international demand, an HSBC survey said on Friday.
The HSBC India Manufacturing Purchasing Managers' Index (PMI) - a measure of factory production - stood at 54.2 in February, after slowing to a three-month low level of 53.2 in January. It stood at 54.7 in December.
The index has remained above the 50 mark, below which it indicates contraction, for more than three years now.
"Manufacturing activity picked up on the back of stronger growth in domestic orders," HSBC chief economist for India & ASEAN Leif Eskesen said.
The volume of incoming new work at manufacturing firms in India rose during February. With around 29% of monitored companies reporting higher levels of new orders and just 14% noting a decline.
"Anecdotal evidence suggested that new orders increased in line with stronger demand, maintained product quality and the launch of new products," the report said, adding that a further rise in export orders was recorded, amid evidence of stronger demand from international clients.
Regarding inflation, HSBC said the pace of inflation during the month February was robust. "Inflation pressures, however, remain firm, with input cost inflation holding steady and inflation of output prices picking up," Eskesen said, adding that "The numbers underscore that the room for monetary policy easing is limited, even with progress on fiscal consolidation."
The Wholesale Price Index-based inflation plummeted to a three-year low of 6.62% in January. The retail inflation, however, continued to remain in double digit.
In its January 29 policy review, RBI after a nine-month long hawkish monetary policy stance, slashed its key interest rates by 0.25%. The central bank on January lowered interest rates by 0.25% saying that with inflation showing signs of remaining range bound, it was now critical to arrest the loss of growth momentum.
Meanwhile, employment in the Indian manufacturing sector expanded slightly during February. Firms stated that payroll numbers were increased in tandem with higher production requirements.