Indian manufacturing growth accelerated in March after a jump in demand even though firms pushed up prices at the fastest rate in four months, a business survey showed on Thursday.
The HSBC Manufacturing Purchasing Managers' Index, compiled by Markit, rose to 52.1 in March from 51.2, confounding economists polled by Reuters who expected a slight dip to 51.0.
Any reading above 50 indicates growth. For Indian manufacturing, March is the 17th straight month of expansion.
"Momentum is building in manufacturing as the sector begins to build up a head of steam. Stronger expansions of output, new orders and stocks of purchases all contributed to a higher PMI reading in March,' said Pollyanna De Lima, economist at Markit.
New orders, which highlight underlying demand, rose to 53.2 in March from 51.9 in February. Firms' employment levels remained steady last month.
"Faster increases in incoming new work, buying levels and backlogs, however, indicate that the subdued labour market is likely to recover in coming months," De Lima said.
Costs rose at their fastest rate since August but firms were able to pass some of that on to customers.
A return of inflationary pressures could increase expectations that the Reserve Bank of India will not cut interest rates at its policy meeting on April 7.
A Reuters poll found most economists said the benchmark rate will be left at 7.50 percent on April 7, but cut by 25 basis points by the end of June.
The RBI has cut rates twice this year at unscheduled meetings as consumer inflation fell to well within its comfort zone.
The latest Reuters poll of stock market analysts found that government reforms covering land purchases and the implementation of a goods and services tax would benefit manufacturers the most.
The GST would transform Asia's third-largest economy into a single market, streamlining a myriad of state taxes in a bid to make it easier to do business. A land acquisition bill would make it easier for firms to buy land.