Factory growth lost momentum last month as softness in new domestic orders prompted firms to lower production growth, but demand from abroad picked up, a survey showed on Thursday.
The HSBC Manufacturing Purchasing Managers' Index, compiled by Markit, fell to 50.7 in December from 51.3 in the previous month.
The index, which gauges business activity in Indian factories but not its utilities, spent three months below the 50 mark that separates growth from contraction before rising above it in November.
"Manufacturing activity decelerated slightly in December as a slowdown in domestic order flows led to slower output growth," said Leif Eskesen, a chief economist at HSBC.
"Today's numbers show that growth remains moderate and struggles to take off due to lingering structural constraints."
While overseas orders came in at a faster pace last month, domestic demand took a hit from the struggling economy.
A sub-index measuring overall new orders fell to 51.3, from 51.9
That prompted firms to decrease the pace of output growth last month.
A long struggle to contain inflation with high interest rates, government policy paralysis and fragile global demand have pushed the economic growth lower.
The latest PMI showed inflationary pressures, which started to ease in November after a pick up in the previous few months, remained steady.
Raghuram Rajan, the central bank governor, has made fighting inflation a priority after his appointment in September and has raised the repo rate twice since to bring it to 7.75%.
However, despite an uptick in inflation in November, the Reserve Bank of India refrained from raising the key repo rate at its review last month, though it said it would remain vigilant on prices.
"Inflation pressures remain firm and are proving sticky. (The) RBI may yet again have to flex its muscles and tighten monetary policy to bring down the elevated level of inflation," Eskesen said.
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