The HSBC India Manufacturing Purchasing Managers' Index (PMI) - a measure of factory production - dropped slightly from 51.3 in November to 50.7 in December. (Agencies)
Despite a slight deceleration, the manufacturing sector activity expanded for the second consecutive month. A PMI reading of above 50 differentiates growth from contraction.
"Today's numbers show that growth remains moderate and struggles to take off due to lingering structural constraints," HSBC Chief Economist for India and ASEAN Leif Eskesen said.
The Indian manufacturing sector ended 2013 on an encouraging footing. Operating conditions improved for the second successive month in December, as both output and new orders increased, HSBC said.
Consequently, firms raised their workforce numbers further in December, the survey noted.
New orders placed at Indian manufacturers rose in December, albeit marginally. The higher levels of new work were largely driven by improved domestic and overseas demand.
A sector-wise analysis shows that the overall expansion in production volumes was largely centred on the consumer goods sub-sector. Moreover, export order growth was registered for the third consecutive month.
On price rise, the survey said that the overall rate of inflation remained "robust". The increase was largely on the back of higher prices paid for raw materials such as metals, chemicals and textiles. Output prices rose for the seventh month in a row.
"Even so, inflation pressures remain firm and are proving sticky. RBI may yet again have to flex its muscles and tighten monetary policy to bring down the elevated level of inflation," Eskesen said.
As per official data, while retail inflation soared to a nine-month high of 11.24 percent in November, the index based on wholesale prices zoomed to a 14-month high of 7.52 percent last month.
Analysts are of the opinion that inflation has peaked and will ease in December as food prices cool on better supplies with winter crops coming in.
In the mid-quarter review of monetary policy on December 18, the Reserve Bank left key policy rates unchanged but said it will hike interest rates if inflation does not subside in line with the expected declining trend.
The HSBC India Manufacturing Purchasing Managers' Index (PMI) - a measure of factory production - dropped slightly from 51.3 in November to 50.7 in December.