India Industrial Output Beats Forecasts

Manufacturing was up 15% in July

India's industrial output in July surged by a forecast-busting 13.8%, data showed on Sept. 10, boosting chances of further interest rate hikes to curb the country's stubbornly high inflation.

The year-on-year output growth reflected the country's strong recovery from the global financial crisis and marked a sharp rebound from June's 5.8% rise, economists said.

"Industrial India is running blister hot," said HSBC economist Frederic Neumann.

Analysts said the output rise -- nearly double the consensus market forecast of 7.8% -- could tilt the odds in favor of more interest rate hikes when central bank policymakers meet next week.

Manufacturing, which has an 80% weight in the industrial output index, rocketed 15% in July from a year earlier and included a 63% surge in production of machinery and other capital goods.

Indian car sales soared by a third in August to a record monthly high of 160,794 units from a year earlier, figures showed on Sept. 9.

Mining expanded 9.7% while electricity output rose 3.7%.

July's data came despite aggressive rate hikes that analysts believed would cool demand for capital and consumer goods. The manufacturing sector "has emphatically shrugged off" other rate hikes which should ease the central bank's concerns about the shaky global outlook and rate tightening affecting growth, said Matt Robinson of Moody's Analytics.

The central bank has hiked rates four times since the start of 2010 to curb inflation, which now stands at nearly 10%. The data underscore concerns that inflation will continue to be a problem as factories operate at peak capacity to meet booming consumer demand, economists said.

Top-level economic planning official Montek Singh Ahluwalia said the output data put the economy firmly "on track" to achieve the government's official 8.5% growth target for this fiscal year to March 2011. Data last month showed the Indian economy grew 8.8% in the fiscal first quarter, its best performance since 2007, as the country returned to boom levels last seen before the financial crisis.

Copyright Agence France-Presse, 2010

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