Manufacturing Leads India Surprise 11.8% Industrial Growth

Manufacturing grew 13.3%

India's industrial output grew unexpectedly strongly in October as the festival season boosted consumer demand, data showed on Dec. 12, but economists said the surge would be short-lived. Output by factories, power utilities and other sectors accelerated by 11.8%, up sharply from 4.5% growth in the same month a year ago and a revised 6.8% in September, the Central Statistical Organization said. Manufacturing led the way, growing by 13.3%.

"The bottom line is that the October industrial production jump is exaggerated owing to last years weak base" and the festival season, warned Rajeev Malik, economist at JP Morgan. Industrial growth often spurts higher ahead of the festivals as the majority Hindu population splashes out on gifts for Diwali or the Festival of Lights -- a key date on the Hindu calendar that falls in late October or early November. India's 140 million Muslims also celebrate the major Muslim festival of Eid al-Fitr that marks the end of the fasting month of Ramadan at around the same time.

But aggressive monetary tightening to tame prices has sharply raised loan costs and is expected to slow growth in coming months along with a rupee that has climbed by 12% against the dollar to hit near-decade highs. Already the impact can be seen in a downturn in demand for consumer durables and lower export growth. "We very much doubt that India's industrial downturn is over," said economist Robert Prior-Wandesforde at HSBC in Singapore. The effects of interest rates and currency concerns "will continue well into 2008 bearing in mind the biggest rate rises and currency appreciation came in late-2006 and early-2007," he said. "It takes at least 18 months for the full impacts to be felt," he added.

Industrial production represents about a fifth of India's GDP and is considered an important pointer to overall growth prospects.

Copyright Agence France-Presse, 2007

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