India's Industrial Output Growth Slowest Since '09

Manufacturing increased 2.3% year-on-year, down from 10.8% in the same period in 2010.

India's industrial output grew just 3.3% year-on-year in July, its slowest in nearly two years, official data showed on Sept. 12, indicating a wider slowdown in Asia's third largest economy.

The lower than expected figure -- the worst since October 2009 and following 8.8% growth in June -- will provide another headache for the central bank as it tries to tame inflation as economic growth eases.

Output at factories, utilities and mines was hit by manufacturing activity, which grew at 2.3% year-on-year, down from 10.8% in the same period in 2010.

Capital goods production, meanwhile, shrank 15.2% against growth of 40% a year earlier, the Central Statistical Office said.

Industrial output data trends have followed no clear pattern in recent months, see-sawing due to the volatility of capital goods.

Cement machinery and cables contributed to lower capital goods growth but demand for consumer goods at 6.2 percent was still high.

The figures are fresh bad news for the Reserve Bank of India (RBI), which has been under pressure from worried businesses to pause its cycle of hiking interest rates. The bank has raised benchmark lending rates 11 times since March 2010 to curb stubbornly high inflation currently at 9.22%, stoked by rising food and fuel prices.

However, RBI has said higher rates are necessary even if it means sacrificing some economic growth.

Last month, India posted its slowest gross domestic product (GDP) growth in six quarters, up 7.7% year-on-year, as expansion was hit by the longest stretch of monetary tightening in a decade.

And despite the below-par output and voices growing for a pause in monetary policy tightening, the RBI is still likely to raise rates once again later this week before it decides on a pause, economists say. The hawkish RBI will look to annual inflation data due on Sept. 14 more closely as it continues to maintain its anti-inflationary stance.

Copyright Agence France-Presse, 2011

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