Business conditions improved in March owing to strong inflows of new work leading firms to scale up output, and domestic demand improved along with rise in exports business, key macro-economic data showed on Monday.
In March, the Nikkei India Manufacturing Purchasing Managers' Index (PMI) - a composite single figure indicator of manufacturing performance - rose to an eight-month high of 52.4 from 51.1 in February.
An index reading of above 50 indicates an overall increase in the economic activity, and below 50, an overall decrease.
"PMI data suggest we should expect another quarter of robust economic growth in the last quarter of the 2015-16 financial year," said Pollyanna De Lima, economist at Markit, which compiles the survey.
However on the price front, cost inflation accelerated, while charges rose to their greatest extent since November 2014.
In the reviewed month, production growth grew at the fastest pace since August 2015 with consumer goods posting fastest rate of increase.
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According to the index, March witnessed the third successive monthly rise in order books as a result of improved demand from domestic and external clients.
Though new export orders saw sustenance, the rate of expansion was slight.
Similar is the case with buying levels linked to stock building initiatives in March, which though quicker than February, had only a slight overall growth.
"Despite gathering momentum, growth of production and new orders still remained below trend rates. On the export front, it was encouraging to see a sustained increase in new export orders, often attributed to the depreciation of the rupee," said De Lima.
Pre-production inventories expanded as a result of rising purchasing activity but the rate of accumulation was slight overall as seen in the current four-month growth sequence.
Finished goods holdings however slumped the highest in March since August 2015, with new and existing orders often fulfilled directly from the stocks.
Unemployment levels broadly broadly remained the same as backlogs of work fell in March.
Meanwhile a weaker rupee resulted in higher prices for raw materials increasing input costs while rates of cost and charge inflation were at a high of three months and six months respectively.
"Falls in commodity and oil prices were offset by the weaker rupee making imported raw materials costlier. This build-up in inflationary pressures may lead the Reserve Bank of India to hold off from cutting rates, especially as solid growth was seen," added De Lima.