The HSBC manufacturing Purchasing Managers' Index (PMI), which gauges business activity at India's factories but not utilities, fell to 52.9 in July, from 55.0 in June - its biggest one-month drop since September last year.
Still, the index has remained above the 50 mark that divides growth and contraction for more than three years.
With clear signs the global economy is slowing, export orders fell slightly for the first time in nine months.
Electricity outages across India over the last month also crimped production while factories were without power.
"Manufacturing activity grew at a slower clip in July on the back of power outages and a moderation in new order inflows, with the weak global economic conditions dragging down export orders," said Leif Eskesen, economist at HSBC, sponsor of the survey.
But the impact of the unusually severe blackouts of the last two days of July, which hit grids in a dozen northern states home to around 670 million people, was not included in the survey.
That suggests manufacturing last month may have been hit harder than the headline PMI number suggests.
Manufacturing accounts for around 15 percent of India's gross domestic product, so a slowdown would not augur well for Asia's third-largest economy, already grappling with its weakest growth in almost a decade.
The new export orders sub-index fell to 49.7 from 52.3 in June, highlighting the global effect of the current downturn caused by the euro zone's 2-1/2 year old sovereign debt crisis.
Prices continued to rise, although a little more slowly than in June, showing that the Reserve Bank of India (RBI) still faces a tough task balancing lukewarm growth with relentless inflation.
"Input and output prices decelerated, but inflation remains above historical averages," Eskesen added.
The RBI left its policy rate unchanged at 8 percent on Tuesday for a second consecutive meeting as it tried to rein in inflation, after cutting it by 50 basis points in April to maintain growth.
Underlining the policy dilemma as it faces pressure to reduce rates, the central bank cut its economic growth forecast for the fiscal year to March 2013, and raised its inflation forecast.
The Indian economy has been throttled in recent years by a combination of high inflation, tight monetary policy, weak global economic conditions and the lax implementation of fiscal policies and reforms.
This prompted the RBI to press the government to implement long-pending reforms, such as allowing foreign direct investment in the supermarket and airline sectors.
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The Central Electricity Regulatory Commission (CERC) has summoned officials of four states, which drew more power than what had been allocated, leaving 20 states in the dark.
Taking a tough stance, the power sector regulator CERC has asked the officials of the energy department from Uttar Pradesh, Haryana, Punjab, Uttarakhand and Jammu & Kashmir to personally appear before the regulator on August 14.
“Considering the seriousness of the situation, notice is issued to head of state load despatch centres, state transmission utilities and state electricity boards/the distribution licensees in the northern region as to why they will not be held personally liable for the penalty for non-compliance with the directions of the commission and provisions of the grid code,” the CERC order says.
The commission’s order has made it clear that it will be the personal responsibility of the officials to ensure the compliance of the CERC directives.
“Non-compliance of the above directions in any form will be viewed seriously and appropriate actions under provisions of the Act shall be taken,” the order says.
Three crucial grids – northern, eastern and north eastern – tripped simultaneously which left over 300 trains stranded. Metro rail services in Delhi and Kolkata came to a grinding halt and emergency measures had to be activated to ensure power supply for critical services.
Delhi airport operator DIAL had to deploy several generators to generate 60 megawatt required for smooth operations. Nearly 100 mw power was sourced from Uttar Pradesh to maintain essential services as the grid tripped for the second time in less than 24 hours.