NEW DELHI (Reuters) - India's industrial output slumped to 0.5 percent in November amid a slowdown in auto and garment manufacturing, making Prime Minister Narendra Modi's challenge to boost investment before an election in the coming months seem tougher than ever.

Annual industrial output growth in November was far below a forecast of 4.1 percent in a Reuters poll and an upwardly revised 8.4 percent year-on-year increase in October, government data released on Friday showed.

The industrial output data series is widely considered as volatile but many economists said the November figures were also affected by lesser number of working days in November due to festival.

"The sharp drop in industrial production growth in November is in large part linked to the shift in the timing of the Diwali holidays last year," Shilan Shah, India economist of Capital Economics in Singapore said.

"Near-term prospects for industry remain fairly upbeat."

Modi, who is aiming for a second five year term in national elections which must be held by May, has pumped billions of dollars of state funds into building roads, ports and airports to support economic growth and create jobs.

On Thursday, the government announced a change in national sales tax rules that would exempt an additional two million small businesses, a move aimed at boosting manufacturing and improve competitiveness of small firms.

India's economic growth fell to a worse-than-expected 7.1 percent in the July-September quarter, dragged down by a slower consumer spending and farm growth, in a setback Modi.

(Reporting by Manoj Kumar; Editing by Raissa Kasolowsky)

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