India's Factory Output Jumps, Inflation Inches Up Getty Images

India's Factory Output Jumps, Inflation Inches Up

The 2.6% increase in production by Indian factories, mines and utilities in January from a year ago was higher than the 1.7% recorded in December and beat economists' expectations.

NEW DELHI – India's industrial production grew by a stronger-than-expected 2.6% in January -- signaling a boost in Asia's third largest economy -- but February retail inflation also inched up, government data showed Thursday.

The 2.6% increase in production by Indian factories, mines and utilities in January from a year ago was higher than the 1.7% recorded in December and beat economists' expectations.

Analysts said it provided further evidence of an upturn in India's economy, but cautioned that the rise in inflation would make it harder for the central bank to cut rates.

Consumer inflation edged up for the third straight month to 5.37% in February from a year earlier and 5.11% in January, due to higher food prices triggered by unseasonal rains.

A dip in global crude oil prices has helped bring down inflation to near-5% from double digits in 2013, allowing the central bank to cut interest rates twice so far this year to boost growth. 

Siddharth Roy, economic advisor to vehicle-to-steel giant Tata Group, said the economy appeared to be moving in a positive direction after the government said last month that growth would hit 7.4% in the current financial year.

"The economy seems to be moving in the right direction. Consumer confidence seem to be returning and business expansion plans seem to be coming back on track," Roy told AFP.

"But we are not out of the woods yet. These are only early signs that economic activity is looking to pick up."

The Reserve Bank of India (RBI) made a surprise 25-basis-point rate cut last week, under pressure from the government and markets to reduce the cost of borrowing in order to boost economic growth.

But Governor Raghuram Rajan has made clear he will not rush into further cuts, saying he wants to win the battle against inflation.

The RBI has a target of bringing inflation consistently below 6% by January, and to 4% for the 2016/17 financial year.

Copyright Agence France-Presse, 2015

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