The PMI report also showed that the speed at which factory costs rose was the weakest in a year, even as output prices rose at the fastest rate in three months while firms adjusted their pricing of products to account for the new national tax.
The Nikkei India Manufacturing Purchasing Managers' Index (PMI) rebounded to 51.2 in August from a low of 47.9 in the previous month, indicating a substantial turnaround from July's GST-related contraction.
Although the rate of improvement in foreign demand eased from July's near-record high, it remained among the strongest seen since new export orders data were first collected in January 1996.
The overall health of India's manufacturing sector improved in August due to resumed growth of new orders, production and employment, a key macro-economic data showed on Friday.
A separate index measuring non-manufacturing activity fell for a second month, slipping to 53.4 from 54.5 previously, reflecting slowing momentum in China's services sector.
The index for new export orders was also revised down to 51.3 from a flash reading of 52.2. That exceeds the 55 forecast by economists in a Bloomberg survey and is well above the 50 level dividing expansion from contraction. The pick-up in new business was generally more modest than in China, however, suggesting its economic growth may moderate from an eye-popping 4% annualized rate in the second quarter.
According to the Markit survey, purchase price inflation accelerated for the first time in seven months during August, with over a third of companies reporting rising purchase prices.
While remaining elevated, United Kingdom inflation unexpectedly eased from 2.9% to 2.6% in July. "In addition, manufacturers' optimism regarding future production growth only edged up in August to its five-year average, suggesting that they will invest only cautiously in extra capacity".