"Output and new business growth remained weak in the context of historical survey data. The lingering effects of recent economic shocks continue to cast a shadow on economic growth," said Aashna Dodhia, an economist at IHS Markit.
The new orders sub-index, a proxy for domestic demand, fell to a three-month low of 51.0 in September from 51.5, discouraging firms from increasing output faster. Foreign demand fell.
Demand has been wobbly following the government's decision late last year to scrap high value banknotes while the new Goods and Services Tax has dampened consumer spending and production further.
India's economic growth plunged to a three-year low of 5.7 per cent in the April-June quarter.
To attract demand, firms continued to absorb most of the cost pressure in September, suggesting inflation is unlikely to exceed the Reserve Bank of India's 4 per cent medium-term target soon.
A separate Reuters poll showed the central bank is expected to hold policy steady at its October 4 meeting and well past next year.
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