India's Industrial Output Dives

Output increased 4.4% in September, sharply down from 8.2% growth posted in the same month a year earlier.

Indian industrial output growth nearly halved in September, data showed on Nov. 12, raising concerns about the impact of higher interest rates and removal of government stimulus on the economy.

Output from the country's factories, mines and utilities increased by 4.4% in September, sharply down from 8.2% growth posted in the same month a year earlier.

Production of capital goods such as machinery was the main disappointment in October, falling 4.2% from a year earlier.

Growth in consumer durables was also down, slowing to 10.9% in September from 27% growth in the previous month and was the weakest since March 2009.

In August, output increased by a revised 6.9% year-on-year, a sharp decline from a 15.2% surge the previous month.

Finance Minister Pranab Mukherjee said the falling numbers in Asia's third-largest economy were a matter of concern. Output "has come down for two consecutive months. We have to analyze why this is happening," Mukherjee said.

Business leaders also voiced worry and urged authorities to slow down in rolling back fiscal and monetary stimulus. The government "must intervene in time to arrest this slowdown in the manufacturing sector," said Amit Mitra, secretary general of the Federation of Indian Chambers of Commerce and Industry.

Industrial output had been surging, lifted by government spending and aggressive monetary easing to help shield the economy from the global economic crisis. But since the start of the year, the central bank has raised interest rates six times to combat headline inflation that hit double figures, while the government has gradually withdrawn stimulus measures.

The far weaker figures mean interest rates are likely to stay on hold for at least the short-term, analysts agreed.

"The first month of decline (in industrial production) could have been a statistical blip but now it has fallen two months in a row there is a niggling doubt that the figures are signaling something more permanent," Abheek Barua, chief economist at India's HDFC bank, said.

The industrial production was well below forecasts by economists, who had expected a rise of around seven percent from a year earlier on the basis of healthy other data such as strong auto sales. However, analysts noted the industrial production numbers have a tendency to be volatile. They forecast output could show a pick-up in coming months on the back of demand during India's religious festivals when buying is strong.

"For what its worth, the countrys manufacturing Purchasing Managers' Index, although down from its high, is certainly consistent with much stronger growth than we have seen recently (in industrial output)," said Credit Suisse economist Robert Prior-Wandesforde.

"If you look at other data, it seems India is doing okay in terms of growth," agreed Brian Jackson, emerging markets strategist at Royal Bank of Canada in Hong Kong, told AFP.

However, India's production growth figures were far below neighboring China's, which registered a 13.1% year-on-year increase in October, according to figures this week.

With the exception of Indonesia and Korea, "India had the weakest year-on-year industrial growth rate of any Asian country in September," noted Prior-Wandesforde.

The Indian central bank said last week it expected to keep rates on hold until at least January. It and Australia's central bank have been the most aggressive in the Asia-Pacific region in clamping down on inflation. "We expect an extended pause" in hiking rates, Yes Bank chief economist Shubhada Rao said.

Copyright Agence France-Presse, 2010

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