India's manufacturing sector activity continued to expand in March, with the S&P Global Purchasing Managers' Index (PMI) coming in at 56.4, up from February's 55.3, data released on April 3 showed.
A reading above 50 indicates expansion in activity, while a sub-50 print is a sign of contraction.
This is the 21st consecutive 50-plus print for India's manufacturing PMI.
At 56.4, the March PMI print is at a three-month high.
"India's manufacturing sector posted a remarkable performance at the end of the final fiscal quarter, as growth of factory orders and production quickened to the strongest in three months," S&P Global said in a statement.
"Firms suggested that marketing efforts bore fruit. Demand resilience and competitive pricing were also cited as growth drivers," it added.
Foreign demand for Indian goods increased too, with new export orders rising in March. However, compared to historical levels, the rise in new export orders was subdued.
The improvement in manufacturing activity will brighten the mood of policymakers who have seen the sector take a backseat in recent months while services activity has hit new highs. Data released last month showed the services PMI hit a 12-year high of 59.4 in February.
The robust manufacturing PMI data comes a day after government data showed India's total Goods and Services Tax collections rose to Rs 1.6 lakh crore in March - the second-highest level since the new indirect tax regime was introduced in July 2017.
Even as manufacturing output expanded, S&P Global's survey found evidence of "only mild pressure" on capacity.
"Companies reported abundant capacity among themselves and their suppliers. Pending workloads expanded only marginally in March, hindering job creation," said Pollyanna De Lima, economics associate director at S&P Global Market Intelligence.
But there was more good news for policymakers, as input cost inflation eased to its second-lowest level in two-and-a-half years. This led to manufacturers adding to their inventory of raw materials and semi-finished items at one of the highest rates in more than 18 years.
Selling prices, meanwhile, increased further in March at a rate similar to that seen in February.
"Several panellists reportedly left their fees unchanged amid efforts to boost sales," S&P Global noted.
India continues to battle high retail inflation levels, with Consumer Price Index (CPI) inflation at 6.44 percent in February. The elevated inflation levels have sparked expectations of another repo rate hike by the Reserve Bank of India's Monetary Policy Committee, which will announce its interest rate decision later this week on April 6.
The policy repo rate currently stands at 6.5 percent, having been raised by 250 basis points in 2022-23.
One basis point is one-hundredth of a percentage point.