India’s manufacturing sector grew fastest in five months in March, as the manufacturing PMI logged 52.5, Nikkei Purchasing Managers’ Index said on Monday.

It also cautioned that the long-term outlook depended on the government’s reform agenda.

“PMI data for March reveal positive developments in the Indian manufacturing sector. Rates of expansion in factory orders and production accelerated again, encouraging some companies to scale up their input buying and take on additional workers," Pollyanna De Lima, Economist at IHS Markit said. The Nikkei Manufacturing Purchasing Managers’ Index is compiled by IHS Markit.

This is the third consecutive month of expansion in the manufacturing activity in India backed by high orders to factories both domestically and overseas. PMI was 50.7 in February. A reading below 50 is contraction.

The survey was also upbeat on the inflation front.  “Looking ahead, we expect domestic demand to recover gradually as new Rs 500 and Rs 2,000 notes become more widely available and also as more people switch to digital payments. This should boost the near-term prospects for manufacturers,” he said, adding the longer-term outlook depended on the government’s reform agenda.

“... While the government’s political capital has increased, there is no clear indication that Prime Minister Narendra Modi actually has the conviction to push ahead with necessary but unpopular reforms that would boost manufacturing, including on the labour market and land acquisition. For now at least, a sustained pick up in manufacturing seems unlikely,” Lima said.