Indian manufacturing activity expanded for a second consecutive month in February as price cutting boosted both domestic and foreign demand, a business survey showed on Tuesday.
The Nikkei/Markit Manufacturing Purchasing Managers' Index held steady at January's 51.1 last month, its second month above the 50 mark that separates growth from contraction after it fell below that level in December for the first time in over two years.
Incoming orders expanded at their fastest pace in five months in February, with the sub-index rising to 52.3 from 51.7. Foreign demand also rose, albeit at a slower pace.
The increase in demand, however, failed to stoke a significant rise in overall output, which remained virtually unchanged from January. Employment contracted slightly in February, after hovering just above the 50-mark in the previous four months.
Input costs rose for a fifth month but at the weakest pace in that time, while factory gate prices fell for the first time since September.
"Goods producers continue to benefit from lower crude oil prices in global markets, which put a brake on inflationary pressures," said Pollyanna De Lima, economist at Markit.
"In light of these numbers, the Reserve Bank of India has scope to loosen monetary policy to spur the economy."
Historically low inflation in 2015 allowed the RBI to cut interest rates by a cumulative 125 basis points last year, but the bank's scope for further easing has been limited recently by a pick up in prices.
Inflation has been climbing over the last six months, hitting 5.69 percent in January, leading the RBI hold rates steady at 6.75 percent at its last meeting.
In February, RBI Governor Raghuram Rajan indicated any further cuts would depend on the government's new budget and whether it delivers on economic reforms promised during the 2014 elections.
Finance minister Arun Jaitley presented a fire-fighting budget on Monday to try and sustain growth against a grim global backdrop.
He also announced a 22.5 percent hike in public investment in infrastructure, as well as measures to revive corporate investment, and called India a "bright spot" in an increasingly poor global economic landscape.