India's manufacturing sector expanded at a slightly faster pace in January on the back of output and new order growth but inflationary pressures persisted, a business survey showed on Tuesday.
The HSBC Markit Purchasing Managers' Index, based on a survey of around 500 companies, edged up to 56.8 in January from 56.7 in December.
That was the 22nd consecutive month the key index of manufacturing in Asia's third-largest economy has been above the reading of 50 that divides growth from contraction.
"The manufacturing sector started the year out in style, with the growth momentum picking up a tad led by higher output as order books continue to thicken, reflecting, in particular, strong demand from domestic clients," said Leif Eskesen, chief economist for India & ASEAN at HSBC.
The survey's factory output index rose in the first month of 2011 from December but is still below its November nine-month high. Output has increased in every month since April 2009.
The new orders index also rose after falling in the previous month, marking its 22nd consecutive month in expansionary mode.
However, the expansion in the manufacturing sector did not influence the labour market recovery, with the PMI's employment index staying in contraction for the sixth time in the last seven months.
More worrying, the input price index rose to 66.14 from 64.85 in December, climbing for the seventh straight month, and the output price index rose for the fourth month in a row.
"The strong demand is, however, piling up backlog of works, albeit at a slightly slower pace, and the tight capacity yet again pushed up input and output prices at an accelerated pace," Eskesen said.
Inflation has been a concern for policymakers in most developing economies, including India, where rising food prices have driven up broader inflation and put more pressure on central banks to tighten policy.
The Reserve Bank of India raised interest rates last week by a quarter of a percentage point to clamp down on resurgent inflation and warned of persistently higher food prices unless steps are taken to boost supplies.
Although the central bank has raised policy rates seven times since March as the economy revived from the global financial crisis, it said the balance of risks had tilted towards stronger inflation and it was ready to respond if price pressures increased.