Indian factory output rose to a 17-month high in July, due to the expansion of orders from domestic and foreign companies, according to a business survey.
The HSBC India Manufacturing Purchasing Manager Index (PMI) rose to 53 in July from 51.5 in June, its highest since 2013. Figures above 50 indicates growth while below means shrinkage.
As production in industrial sector surged, conditions in the Indian manufacturing sector improved for the ninth consecutive month in July.
But in July, the employment rate deteriorated fractionally for the first time since September 2013, while the inflationary pressures continued to emerge on the supply side.
Higher prices paid for metals, plastics, textiles, packaging, food and energy led to a further surge in input prices in July, and the rate of cost inflation was the fastest since February.
"Details within the survey show that all monitored categories witnessed a rise in output and order flows,'' said Frederic Neumann, co-head of Asian economic research at HSBC.
"The speed of the recovery has also lifted price pressures, with input prices rising steeply. This means that the RBI may not cheer as loudly as the rest of us," he added.
Consumer inflation eased to 7.3 percent in June but irregular rainfall and surge in food prices can pressurise RBI to hold its key interest rates steady at its policy review next week on 5 August.