India's manufacturing sector expanded at the fastest pace in four months in June as the country saw improvement in business conditions as well as hiring, an HSBC survey said.
The HSBC India Manufacturing Purchasing Managers' Index (PMI) - a measure of factory production - improved slightly to 55 in June, from 54.8 in May.
A reading above 50 shows that the sector is growing.
Below 50, it indicates that the segment is contracting.
India's manufacturing PMI has been above the 50 mark for more than three years.
"Activity in the manufacturing sector kept up the pace in June with output, and employment expanding at a faster pace," HSBC Chief Economist for India and ASEAN Leif Eskesen said.
HSBC, however, cautioned that going ahead a slight moderation in output is likely as new order growth decelerated slightly led by export orders amid the sagging global economic situation.
June PMI data also signals continued inflationary pressures in India's manufacturing sector as input and output prices rose at a faster pace than in May, keeping inflation high by historical standards.
Output prices increased as manufacturers attempted to pass the rise in the cost of inputs on to their clients.
Moreover, charges also increased in line with more expensive labour costs, HSBC pointed out.
India's wholesale inflation was 7.55 per cent in May. At the retail level, the Consumer Price Index (CPI) inflation for May was 10.36 per cent.
"In light of these numbers, the RBI does not have a strong case for further rate cuts, which could add to lingering inflation risks," Eskesen said.
In its mid-quarter monetary policy review on June 18, RBI chose to leave key interest rates on hold.
Meanwhile, the Indian economy is grappling with slow growth and high inflation rates.
India's economic growth rate slowed to a 9-year low in March quarter at 5.3 per cent, and 6.5 per cent for the entire 2011-12 fiscal. The 2011-12 growth was lower than 6.7 per cent seen in 2008-09 amid the height of global financial crisis.