India's factory sector expanded in June to a four-month high, a key survey showed on Monday, indicating an improvement in business conditions despite widespread concern over the nation's economy.
The HSBC India Manufacturing Purchasing Managers' Index (PMI), a measure of factory output, was marginally up to 55.0 in June from 54.8 in May.
A reading above 50 reflects expansion while a reading below 50 suggests contraction.
The data comes when global ratings agencies have warned they may downgrade India's debt to junk status with the economy reeling from gaping fiscal and current account deficits, strong inflation and a weak currency.
While business conditions improved, costs rose at a faster pace in June than in May, which meant inflation remained high, HSBC said in a statement.
"The Reserve Bank of India (RBI) does not have a strong case for further rate cuts, which could add to lingering inflation risks," HSBC's chief India economist Leif Eskesen said.
The RBI kept interest rates unchanged last month after it had cut rates in April -- its first such move in three years -- after hiking borrowing costs 13 times since March 2010.
Inflation, which was nudging double digits for most of 2011, has now fallen to just under seven percent but the previous rate hikes, along with a sluggish global economy, dragged on gross domestic product growth.
The economy grew just 5.3 percent in January to March, its slowest quarterly expansion in nine years.
The rupee has lost more than a quarter of its value against the US dollar over the last 12 months to hit record lows.