The HSBC India Manufacturing Purchasing Managers’ Index (PMI), a key measure of factory production, eased to 56.6 in February from 57.5 in January, which was an eight-month-high.
A reading above 50 indicates the sector is expanding while a reading below 50 is a contraction.
The survey comes a day after data showed that India’s economy expanded by 6.1 percent year in the last three months of 2011, its weakest annual pace in three years.
HSBC said the PMI reading pointed to a marked improvement in business conditions, with new orders rising at its strongest rate since April.
“Activity in the manufacturing sector continued to expand in February, although at a slightly slower pace,” said HSBC India chief economist Leif Eskesen.
He said that it was “premature” for the Reserve Bank of India to start cutting rates when it meets later this month to decide on monetary policy measures.
“The easing cycle, which is expected to commence in April to June, will be gradual,” Eskesen said.
Industry leaders have raised calls for the RBI to start easing its tight monetary policy stance to boost growth, after recent weak industrial output data.
Experts also want the Congress-led government to act decisively in the budget due to be presented on March 16 to stimulate the economy and for interest rates to come down from close to four-year highs.