For the 26th month in a row, the Manufacturing sector activity index was above the key level of 50, which separates expansion from contraction.
The August manufacturing PMI comes a day after the release of April-June GDP data, which showed that the Indian economy expanded at a four-quarter high of 7.8 percent, broadly in line with expectations. The Manufacturing Sector, on the other hand, grew by only 4.7 percent, dragging down overall growth.
In a press conference following the release of the GDP figures, Chief Economic Adviser V Anantha Nageswaran dismissed any suggestions of weakness in the sector's performance, claiming that high-frequency indicators such as the PMI "do not show that the manufacturing sector is in particular distress."
The manufacturing PMI increased in August as new orders and output increased at the fastest rates in nearly three years. Export orders increased for the 17th consecutive month and to the greatest extent since November.
With demand strong, manufacturers looked to replenish stocks, with input stocks rising at the second-fastest rate in more than 18 years of data collection, according to S&P Global, who added that several respondents to its survey mentioned efforts to protect against potential raw material shortages. Reduced supplier delivery times, which fell for the sixth consecutive month in August, aided the buildup of raw material inventory.
Manufacturers increased hiring to meet increased demand, but overall employment rose at the slowest rate in four months. The level of input and output inflation as measured by the manufacturing PMI survey will be closely monitored by policymakers, given that official data shows wholesale inflation was negative in July, despite retail inflation reaching a 15-month high of 7.44 percent.
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