India's Industrial Output is Highest in Twenty Years

Manufacturing rose 18.5% in December from a year earlier

As the economic recovery picked up steam thanks to hefty stimulus measures, India's industrial output climbed at its strongest pace in nearly two decades in December, official data showed on Feb. 12.

Production by mines, factories and utilities rose 16.8% in December from a year earlier, the biggest jump since March 1990, according to HSBC economist Robert Prior-Wandesforde, and eclipsed forecasts of 12%. Mining grew by 9.5% while electricity generation climbed by 5.4%.

The data showed manufacturing rose 18.5% in December from a year earlier, while consumer durables production, including cars and appliances, soared by 46%.

The industrial production figure marked a sharp contrast to the same month a year earlier, when output shrank by 0.2%, as Asia's third-largest economy was buffeted by the worldwide financial crisis.

The strong data was expected to boost arguments for the government to start rolling back the stimulus steps that helped shield the economy from the worst of the global downturn in the budget to be presented at the end of the month.

The surge is "impressive to say the least" and will strengthen the hand of the fiscal and monetary hawks in the Reserve Bank of India and government, said Prior-Wandesforde.

Pressure is growing on both the government and central bank to start unwinding stimulus measures with inflation riding at 7.31%, the highest level in 13 months, driven by soaring food prices.

Concern is also mounting about India's fiscal deficit, which at 6.8% of gross domestic product is at a 16-year high. "I would expect some kind of withdrawal of tax cuts in the budget," said India's HDFC Bank economist Jyotinder Kaur.

"Most of the sectors which had demonstrated their resilience and capacity to grow have further improved," Commerce Minister Anand Sharma said.

Although the industrial sector represents just over 20% of the economy, the numbers bode well for overall growth, economists and the government said. Government officials say India could log at least 8% growth in the next financial year starting April 1 as it heads back towards the boom levels of 9% it enjoyed before the global slump.

The Federation of Indian Chambers of Commerce and Industry voiced "satisfaction over the strong growth of industrial production" but repeated calls for caution over unwinding stimulus measures. "The stimulus packages need to be continued for some more months to sustain this industrial growth," said federation secretary-general Amit Mitra.

Copyright Agence France-Presse, 2010

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