The S&P Global India Manufacturing Purchasing Managers' Index (PMI) declined to 54.0 in March from 54.9 in February.
A reading above 50 indicates expansion in activity, while a sub-50 print is a sign of contraction.
IHS Markit - the compiler of the PMI - completed its merger with S&P Global on Febraury 28, leading to the renaming of the PMI for India as well as some other countries.
While a reading greater than 50 suggests the manufacturing sector expanded further in March, a fall from February's levels was because of smaller increases in new orders and production.
"Goods producers indicated that new orders continued to increase in March. The rate of expansion eased to a six-month low, but remained marked," said S&P Global on April 4.
On the external front, new export orders received by Indian manufacturers fell in March, putting an end to eight consecutive months of rise in these orders.
Even as growth in new orders fell to a six-month low and new export orders fell for the first time in nine months, the employment situation in the manufacturing sector did not worsen.
After three consecutive months of reduction in jobs in the sector, March saw a "broad stabilisation in headcounts", with surveyed companies saying the current level of employment was enough to meet requirements.
The real concern, however, continued to be the price situation.
"Once again, we saw the transfer of rising cost burdens to clients, with charge inflation at a five-month high," noted Pollyanna De Lima, economics associate director at S&P Global.
"For now, demand has been sufficiently strong to withstand price hikes, but should inflation continue to gather pace we may see a more significant slowdown, if not an outright contraction in sales. Companies themselves appeared very concerned about price pressures, which was a key factor dragging down business confidence to a two-year low," De Lima added.If the inflation for output prices was the highest in five months, that for input prices was the second-lowest in six months, although above its long-run average.