India’s Purchasing Managers’ Index, or PMI, for the month of December dropped to 50.7 from 51.3 in November, according to HSBC’s data released Thursday.

The PMI, compiled by Markit, showed the index stayed above the 50 reading, which separates expansion from contraction, and the PMI average for the final quarter of the year, which stood at 50.5 was higher than the 49.4 reading seen in the previous quarter.

"Manufacturing activity decelerated slightly in December as a slowdown in domestic order flows led to slower output growth. By sector, however, the consumer goods segment held up. Despite the deceleration in order flows, backlogs of work picked up due to raw material shortages and power outages,” Leif Eskesen, chief economist for India and ASEAN nations at HSBC, said.

According to the release, there were marginal improvements in December in manufacturing production, which rose for the second consecutive month, and in new orders that were placed at Indian manufacturers. The report also noted that while the manufacturing sector sustained the pace of job creation, driving further growth amid concerns such as inflation, which precludes easy monetary policy, remains a challenge. 

“Today's numbers show that growth remains moderate and struggles to take off due to lingering structural constraints. Even so, inflation pressures remain firm and are proving sticky. RBI (Reserve Bank of India) may yet again have to flex its muscles and tighten monetary policy to bring down the elevated level of inflation,” Eskesen said.