Indian Factory Output Returns to Growth

Production increased 5.9%.

Increasing 5.9% on an annual basis led by expansion in the manufacturing sector, India's industrial production returned to growth in November.

The performance was stronger than analysts' expectations and showed Indian industry bouncing back from contraction in October, when output shrank a revised 4.7% year-on-year. Analysts counselled, however, that the data still revealed weakness in the sector which has been hit by an aggressive cycle of interest rate rises and weak export demand caused by global economic uncertainty.

Output of capital goods such as machinery -- a key indicator of investment and future production -- fell again, contracting 4.6% on an annual basis.

The president of industry lobby group FICCI, Harsh Mariwala, said demand for capital goods and chemicals was still weakening, even though output of consumer goods had risen sharply.

"It is important that the growth in these two basic sectors is revived for any sustainable growth of manufacturing," he said.

Finance Minister Pranab Mukerjee called the new figures a "good sign" and suggested they portended a stronger showing in the near future. "But for that, we need to take some proactive actions about which I cannot comment on right now," he said, hinting that new policies were required to help industrial groups.

The Federation of Indian Chambers of Commerce and Industry has been critical of the central bank's persistence in raising interest rates to control inflation despite evidence of softening domestic and foreign activity. The Reserve Bank of India (RBI) has raised rates 13 times since March 2010 as it battles inflation that has been nudging 10% on an annual basis but has now begun to fall.

"Now that the inflation is going down and industrial growth remains fragile, the RBI should reduce interest rates as soon as possible to revive investments," Mariwala added.

Copyright Agence France-Presse, 2011

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